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Zambia sees lower 2015 budget deficit due to higher royalties

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Zambia sees lower 2015 budget deficit due to higher royalties

Zambia sees lower 2015 budget deficit due to higher royalties
Zambia’s Finance Minister Alexander Chikwanda. Photo credit: Reuters | Mackson Wasamunu

Zambia plans to narrow its budget deficit in 2015, helped by changes to the mining tax regime which should boost revenue, Finance Minister Alexander Chikwanda said on Friday.

Presenting a 46.7 billion kwacha ($7.4 billion) to parliament, Chikwanda forecast higher economic growth next year, citing a good farm harvest, as well as increased power generation and manufacturing output.

The budget shortfall in Africa’s second largest copper producer would edge lower to 4.6 percent of GDP in 2015 from a projected 5.5 percent this year, while the economy would grow by 7 percent, up from 6.5 percent.

Revenue would rise to 18.5 percent of gross domestic product from an expected 17.2 percent for 2014, Chikwanda said.

Domestic revenue would finance 75.2 percent of the budget, which changes to the mining tax seen adding 1.7 billion Zambian kwacha ($269 million) to the collection.

“The Treasury will continue to exercise prudent fiscal management,” Chikwanda vowed, predicting a budget gap of around 3.3 percent of GDP by 2017. He set a year-end inflation target of 7 percent for 2015 from 6.5 percent in 2014.

The government would increase underground mining royalties to 8 percent from 6 percent as part of an effort to revamp the industry’s tax system, and introduce a 30 percent corporate processing and smelting tax.

Another 30 percent tax would be applied to income earned from “tolling”, industry-speak for an agreement to process another producers raw materials.

Open cast mining operations in the southern African nation would now be subjected to a 20 percent mineral royalty as a final tax.

The tax system in Africa’s second largest copper producer has been in the spotlight amid a simmering row over VAT refunds.

Zambia has been withholding $600 million in VAT refunds owed to mining firms after companies failed to produce import certificates from destination countries.

The finance ministry has since said it plans to waive the requirement because it is impractical, but no refunds have been made yet.

The government wanted “an amicable resolution” to the VAT spat, Chikwanda said.

Zambia had produced 448,673 tonnes of copper in the first eight months of 2014, which was about 50,000 tonnes lower than what the country produced in the corresponding period of 2013.

“The lower outturn was largely on account of a significant fall in output recorded at one of the major mines due to a temporary suspension mining operations as a result of operational challenges,” he said.

Despite these operational constraints, Zambia’s full-year 2014 copper production was projected to be marginally higher than the 2013 output of about 790.000 tonnes, he said.

Mining companies operating in Zambia include Canada’s First Quantum Minerals, London-listed Vedanta Resources, Glencore and Barrick Gold.

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