A Fourth tier of 10 percent on the sliding scale mineral royalty regime will be introduced next year, Minister of Finance Margaret Mwanakatwe has announced. Sliding scale fees are variable prices for products, services, or taxes based on a customer’s ability to pay. The revenue measure, to apply when copper prices rise beyond US$7,500 per metric tonne, will ensure that Zambians benefit from the mineral wealth.

Speaking when she unveiled the 2019 national budget yesterday, Mrs Mwanakatwe said Government intends to increase mineral royalty rates by 1.5 percent at all levels of the sliding scale. “As mineral resources are a depleting resource, it is vital to structure an effective fiscal regime for the mining sector to ensure that Zambians benefit from the mineral wealth our country is blessed with.

“I, therefore, propose to make mineral royalty tax nondeductible for income tax purposes and introduce an import duty at the rate of five percent on copper and cobalt concentrates,” she said. Mrs Mwanakatwe said Government intends to introduce an export duty on precious metals including gold, precious stones and gemstones at the rate of 15 percent. She also said Government will lift the suspension of the export duty on manganese ores and concentrates which was put in place in 2012 and increase the duty to 15 percent from 10 percent.

Meanwhile, Mrs Mwanakatwe said the Tax Act, Mines and Minerals Development, Customs and Excise, Value Added Tax, Insurance Premium Levy Act and Tourism Levy Act will be amended to update, strengthen and remove ambiguities in certain provisions of the tax laws.
This will make tax administration more effective.

“The details of the proposed changes will be reflected in the respective legislation that I will later introduce in the House,” she said.
The minister also proposed to adjust upwards to cost-reflective levels various fees that have not been revised for a long time for services provided by government departments.

“I further propose that from 2020 onwards, revision of fees and fines be indexed to inflation and adjusted every two years,” Mrs Mwanakatwe said.
Meanwhile, Value Added Tax (VAT) will be abolished and replaced with a non-refundable sales tax to minimise revenue leakages.
Mrs Mwanakatwe said Government aspires to increase domestic revenue mobilisation, minimising revenue leakages through interventions such as the planned non-refundable sales tax.

“The need to enhance domestic revenue mobilisation cannot be over-emphasised. Government has, therefore, undertaken a review of the various taxes currently being implemented with a view to improve their contribution and minimise revenue leakages,” she said. The minister said Government, through the Zambia Revenue Authority, will finalise audits of all outstanding VAT refund claims and enforce all outstanding VAT assessments to collect any unpaid taxes.

Mrs Mwanakatwe said Government remains committed to settling verified VAT refund claims that have so far been accumulated.
She also said to encourage local value addition and employment creation in the copper sub-sector, Government has proposed to reduce the company income tax rate to 15 percent from 35 percent for companies that add value to copper cathodes. Mrs Mwanakatwe also said base erosion and profit shifting through aggressive tax planning is detrimental to enhanced domestic resource mobilisation.

“I propose to introduce a new method of computing the amount of interest to be disallowed when computing profits of a business,” she said.
Under this method, interest allowable for deduction will be limited to 30 percent of the earnings before interest, tax, depreciation and amortisation.
She said the measure will exclude businesses on the turnover tax system and those registered under the Banking and Financial Services Act, and the Insurance Act.