Mining companies in Zambia have been advised to brace for the introduction of the sales tax. The Ministry of Mines Permanent Secretary Paul Chanda says mining companies should thus re-orient their working plans to fall in line with the policy once it takes effect early next year.
According to media reports, the introduction of the sales tax implies that there will no longer be VAT refunds. PS Chanda further chided the sole reliance of VAT for capital on the part of miners. He pointed out that instead of using VAT for capital, mining companies should use the VAT refund to help in operations. This, he says, will also go a long way towards ensuring that workers are paid. The removal of VAT, he says, will help provide a level playing field for the companies and the government alike.
He also insisted that VAT refunds cannot be used by mining companies to pay staff salaries, among other liabilities. The Zambian Government has proposed to introduce the Sales Tax in a bid to avoid paying VAT refunds. This more so applies to mining companies, who are still owed around US $600m.
VAT can broadly be defined as a consumption-based tax. It is levied in the supply chain at each point where value is added to a good or service. It was introduced back in 1995 to replace Sales Tax at that time, which was not helping government generate as much revenue.
According to research done, since VAT’s introduction, government revenues have grown exponentially. Unfortunately, the government now has to refund exporters, such as mining companies whose exports are zero-rated, a situation the PF administration is attempting to erase. As such, the sales Tax will be re-introduced from April 1, 2019, despite stiff resistance from a broad range of stakeholders.