THE ZAMBIAN EMERALD SECTOR – FACTS & FIGURES FROM A ZRA PERSPECTIVE

EMERALD SUMMIT 30th – 31st JUNE 2013, INTERCONTINENTAL HOTEL LUSAKA, ZAMBIA PRESENTATION BY JOSEPH NONDE
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Outline of Presentation
• • • • • • • • • Introduction Tax administration of the Extractive Industry Mining Tax Unit Major Taxes Under Mining Tax Audit Mineral Royalty & Computation Regulatory frame work Sanctions for Non Compliance Collection Figures, Values and Quantities Captured Way forward & Conclusion

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Introduction

The Zambia Revenue Authority was established on 1st April 1994 as a corporate body with mandate of collecting revenue on behalf of the Government This mandate requires accessing information to determine the appropriate tax due from taxpayers operating in various specialised and general sectors Each sector has own challenges in terms of tax determination [Process complexity (MNE ownership) or sheer poor record keeping (Small & Medium Enterprises)]
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Extractive Industries
• Zambia is dependent on its natural resources which includes mainly minerals, of which copper is the mainstay:
• • • Zambia’s Large scale mining done mostly by Multinational Enterprises (MNEs) through subsidiary operations Increased pressure mounting on Government and the Revenue Agency to collect more taxes from the industry Media coverage and the work of some Civil Society Organisations (CSOs) in the recent past have helped spread perception that Multinational Enterprises (MNEs) in general and Mining Companies in particular not paying fair share of taxes in Zambia How long before the pressure mounts on the Emerald Sector? Political pressure on the issue of MNEs and their operations in the country » Will the Gemstone sector escape public scrutiny? Everybody is watching!
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Mining Tax Unit
• 2006 IMF study to modernise tax administration • Proposed reforms resulted in merger of VAT & Direct Taxes Divisions into Domestic Taxes Division (LTO, SMTO & D & M Directorates) • Mining Tax Unit created in July 2008 under LTO • Unit deals with companies involved in Mining, Mining Services (large enterprises), Mineral Trading (both small & Large), Prospecting and Explorations • The Mining Tax Unit falls under Domestic Taxes in the Large Taxpayer office

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Major Taxes Under Mining Unit
• Mining companies like other companies are required by law to pay taxes to the Government • Various legislations impose different taxes • Some of the major taxes under the Mining Unit are: • Company Income tax • Mineral Royalty • VAT • WHT

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Mineral Royalty
• Compensation to the Government for extracting minerals from the earth • Charged under the Mines and Minerals Development Act • Paid by all holders of mining rights i.e. large scale mining license, small scale mining license, gemstone mining license artisan mining right, large scale gemstone license

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Mineral Royalty Cont’d
• Prior to 2012 Budget
– Precious metals 5% of norm value – Energy minerals 3% of gross value – Industrials minerals 3% of gross value – Gemstones 5% of gross value

• After 2012 the Mineral Royalty rate is 6%. Mineral royalty is payable monthly by the 14th of the month following the sale

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Mineral Royalty Computation
• • • • • • • Based on Quantities of sold minerals Quantities sold [Total carats or weight?] Gross value or norm value Norm value ( Av. Monthly LME & Metal Bulletin cash prices) Average monthly exchange rates from BOZ Norm value for base & precious metals Gross value for Industrial minerals, energy minerals & Gemstones

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Regulatory Frame Work
• There are powers conferred by various Tax Acts (Income Tax Act, VAT Act to the revenue authority to get information from any one conducting business in the republic:
– Income Tax Act (s.58) requires taxpayers to produce for examination by the Commissioner-General documents or electronically stored data – VAT Act ( s.37) makes provisions for furnishing of information and production of documents – Customs & Excise Act (s.9) allows for officers to request for documents and empowers them to seize the records for analysis

• Zambia has TP legislation based on the arm’s length principle • Legislation provides for Tax Information Exchange Agreements (TIEA) and Mutual Assistance in Tax Matters

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Sanctions Applicable

The legal Framework ( Income Tax Act, VAT Act) provides for both civil and criminal sanctions for non compliance with provisions of the Law
◦ Civil sanction to raise a default assessment (Best of Judgement estimation) where no satisfactory records available ◦ Failure to keep records, produce within stipulated time or furnish for examination leads to 10,000 penalty units or to imprisonment for

12 months or to both.

Obstruction of an officer is criminal when officers authorised by the Magistrate under Criminal Procedure Code
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Collection Figures 1 – Mineral Royalty
Year Collections (Kr) Kagem Contributions (%) 0.6130589 0.9800058 0 0.7889112 0.8464916 0.7610851 0.808019 0.7365906 61% 98% 0 79% 85% 76% 81% 74% 2006 2007 2008 2009 2010 2011 2012 2013 YTD 597,200.09 4,592,407.97 304,533.15 2,994,198.58 3,690,141.36 17,730,376.39 16,805,197.34 6,648,676.13 597,200.09 4,592,407.97 304,533.15 2,994,198.58 3,690,141.36 17,730,376.39 16,805,197.37 6,648,676.13

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Collection Figures 2 – Mineral Royalty
Approx. payments by Gemstone Miners Total Approx. Payments of Mineral Royalty Approximate contribution by Gemstone sector (percentage) Percentage contributions (Kagem) As percentage of Gemstone sector As percentage of Mining sector Kr 53,362,731.01 4,480,526,083 1.19

79.31215558 0.944601849

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Values & Quantities

Quantities and Values as Extracted from Customs Period 2010 2011 2012 2013 Y TD W eight (Kg) 2,384.22 235.54 655.47 1,040.06 V alue (USD 174,606.88 5,000.00 222,739.90 356,646.14 V alue (Kr 844,402.21 23,241.12 1,156,195.12 1,934,679.15

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Current Developments & Way Forward
Initiated project with expectation of ensuring Mining Reporting & Verification – Ensuring that all mines provide their production figures into a centrally managed system managed by ZRA on behalf of all stakeholders [Integrated within ZRA] – Ensuring that a system of collecting accurate mineral production and export figures from the mines is in place • Generating a process or system to verify the quality of the exported minerals • Establishing the independent laboratory testing capabilities
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Conclusion
• All players must embrace accountability and responsibility and in certain instances transparency • All miners and Traders should open up for verification otherwise no persons will back what we do

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