Zambia: Fighting corporate tax evasion with data

Despite shrinking revenues, Zambia is tightening its tax systems

On 23 December 2016, Zambia published its EITI data for 2015 including details about the country’s legal and fiscal regimes, license allocation and registration, mineral sales and more. According to the report, revenues from the mining sector in Zambia fell back by 9% in 2015 from 2014 due to lower commodity prices and less production. A total of ZMK 9 billion (USD 1.05 billion) was collected in tax, royalties and rent in 2015. The revenues were particularly hit by the lower demand for copper from China. Despite all this, the mining sector remained the country’s largest economic sector accounting for almost half of total exports and 18% of government revenues.

Adjusting the tax regime to the commodity prices

Zambia’s tax regime has undergone various changes over the past years. In 2014, the government hiked mining royalty rates and temporarily removed the 30% corporate income tax for mining companies). Mineral royalties are paid by companies based on their production, and governments like Zambia are attracted by royalties because they generate an immediate stream of revenue once mining production starts. The 2015 Zambia EITI Report explains how this “royalty only” regime led to increased production costs for companies and made revenue collection more complex for revenue authorities. The government made new changes to the tax regime in 2015, which meant lowering the royalty rate to be more in line with neighbouring countries and reintroducing the corporate income tax. According to the report, this system will allow for flexibility for companies investing in the mining sector and can help raise government revenues in times of declining copper prices.

EITI Reports have led to strengthening monitoring of the minerals industry in Zambia

According to the National Coordinator of EITI in Zambia, Mr. Siforiano Banda, discrepancies related to production figures revealed in EITI Reports have led to strengthening monitoring of the mining sector in Zambia.

“For many countries like Zambia, it is a challenge to verify the mineral production figures and exports because each reporting agency has its own way of reporting the production figures” says Mr. Banda.

As a result, The Mineral Value Chain Monitoring Project (EITI Report p.37) was developed. The project aims to fight corporate tax evasion by improving monitoring systems and to track mineral resources throughout the value chain, from extraction to exportation. During 2015, the capacity of Ministry of Mines and Mineral Development (MMMD) was further strengthened, to effectively monitor mining activities and mineral production in Zambia, and to share the information with relevant agencies in order to facilitate the mobilisation of the appropriate levels of domestic revenue (EITI Report p.39).

“These new initiatives will not only improve the country’s ability to collect tax revenue from the mining companies but also improve EITI reporting and implementation”, says Mr Banda.

Leading the way on beneficial ownership transparency

Looking ahead, Zambia EITI is working together with relevant government departments to enable beneficial ownership disclosure in the extractive industries. The roadmap to beneficial ownership disclosure seeks to ensure that all oil, gas and mining companies operating in Zambia will be transparent about who owns them and profits from their activities.

Zambia’s Validation commenced on 1 January 2017 and will provide an independent assessment of how the Zambian EITI has sought to improve the governance of its extractive industries. Efforts to further entrench the EITI process in the government’s systems will be key to a more efficient and effective extractives sector in the long term.

Access the Zambia 2015 EITI Report

For more information about the EITI process in Zambia, please visit the country page on eiti.org or consult the national EITI website.