Our initial brief reaction to the 2022 Budget Featured
From their posturing, boasting and unending promises of a paradise, a heaven on earth, we
expected the UPND government to do better than this in their first budget. But it seems they are still in their unending campaign mode of making unnecessary promises of being Macgyvers who will easily fix this and that.
They have promised heaven but they seem to have serious difficulties delivering even purgatory. Their 2022 Budget is expansionary yet with tax concessions given to mining corporations, a clear demonstration that the UPND government is about to surrender our sovereignty to capital and not the people.
Suffice to say, we are known as the second largest producer of copper in Africa. By implication, the copper industry is the most important part of our economy. Be that as it may be, this sector has only been contributing an average 13 per cent to our GDP before Covid-19 hit and around 25 per cent after the pandemic hit us due to disruptions in trade and global supply chain. Ironically, it’s the retail business and PAYE that have been the major contributors to our GDP, meaning our country’s economic prospects is funded by poor people for the benefit of the rich.
You may wish to know that out of the 8 major mining corporations operating in Zambia, only two companies have been paying Company Income Tax (CIT) in the last 25 years. Meaning the rest have been declaring loses as our tax authorities have no capacity to find loopholes in their tax declarations. Base erosion and profit shifting (BEPS) seems to be very easy for these corporations. To maximise value from this sector, the Zambia Revenue Authority proposed the introduction of Mineral Royalty Tax (MRT) to bring certain “loss making” companies on the tax base. Mineral Royalty Tax is not a fee, it’s a tax. Currently it’s paid as final tax by both loss making and profit declaring mining corporations as a final tax. So it is net tax income to the Zambian people.
At the time when the copper prices are historically high, the UPND government has proposed in the 2022 Budget that MRT becomes a deductible tax. Meaning whatever losses they make off CIT can be netted off MRT. This may result in a significant resource mobilisation loss. In the end, the only benefits we may get from the mining sector are only business and job opportunities and PAYE.
Consequently, the named mine they are targeting to benefit from these concessions make super profits and externalise the money. There is no law that will hold them accountable for the promise of the USD2bn a named mine has promised to invest in Zambia. Moreover, in the unlikely event that decency prevails, the named beneficiary mine will use the same extra money saved from tax concessions after exporting Zambian minerals to reinvest in Zambia.
It’s public knowledge that only a named corporation had a legitimate complaint regarding double taxation with non- deductible MRT and Company Income Tax. Why didn’t those brains in government address this specific issue instead of mutilating the revenue base from the industry? One option was to reduce Income Tax to 5 per cent from 35 per cent or even reduce to 0 per cent and compute MRT at a level that protects Zambians.
Why do mining corporations love income tax? Simple transfer pricing and exaggeration of costs to declare lower taxable income. Why do they hate MRT? It’s based on extracted minerals and easy to administer by ZRA and difficult to cheat. Remember this, countries with deductible MRT and lower taxes in this industry have higher stakes or even controlling shares in private mining corporations. So they collect lower taxes and get dividends. In Zambia some mining companies are 100 per cent privately owned. Why such concessions? If Parliament has any spine, this is the time to show it.
Moreover, government just added K4bn non-discretionary expenditure by hiring 40,000 people at one go. It looks good on paper as a percentage of GDP, but that is a lot of pressure on the Treasury given that our wages plus debt service is equal to 114 per cent of domestic revenues. So, at the very least, pretty much all non-wage expenditure is coming from borrowing, which is unsustainable. Given their promises on debt contraction, one would have expected them to match their words with action by reducing on both domestic and foreign debt. If they are going to borrow $4.2 billion in one year yet reducing on the tax base, then they are further plunging the country into a vicious debt cycle.
Like PF, the UPND are continuing on the path of funding their budgets through debt. When you starting funding education – the building of schools – from borrowings – then you know you are on a very dangerous path. For many reasons – economic, cultural and otherwise – education should be funded from your own generated resources no matter what the difficulties or challenges. They seem to have no ideas on how to reduce the budget deficits yet they have unnecessary think tanks on their payroll such as ZIPAR, PMRC and National Economic Advisory Council who get paid for doing nothing and don’t even apply for competitive consultancy works for sustainability. You have 14 grant aides institutions under the Ministry of Health that are embroidered in the duplication of efforts. You have unnecessary courts, unnecessary service commissions and other grand aided institutions that can be merged and leverage on the usage of IT, internet of things and blockchain for less cost and less time while having more impact on productivity.
There has been a significant increase in CDF with no systems in place to manage that. As a socialist party, decentralization is one of our key pillars but it has to been done in a well thought out manner beginning with the transfers of key officers from the ministries that have been merged so that Lusaka only plays an oversight role. What has been assured is the what, the how has not been clearly stated.
We expected the UPND government to give a clear policy direction on the importation of fuel, especially through some government to government arrangement or private sector participation through their own pronounced Private Public Partnership in an attempt not only to stop wastage in terms of subsidies that only benefit middlemen but also to reduce the pressure on the exchange market each time we go to buy dollars to pay for fuel. In a word, they have continued on the same PF path of lack of innovation, generation of new ideas and strictly adherence to the same modus operandi.