By BUUMBA CHIMBULU
CLOSE to US$2 billion has been received by the Bank of Zambia (BoZ) since Government directed the mines to pay taxes in United States dollars in June 2020, thereby mitigating the rapid decline in international reserves, the Daily Nation has learnt.
The Daily Nation set out to find out whether the dollorisation measures have borne fruit and whether want to discard the same.
Under this measure, mines make payments in dollars as opposed to using the Kwacha, which is the local legal currency.
Some stakeholders are however of the view that the measure should be reconsidered saying it is hurting the foreign exchange market.
But the Zambia Chamber of Mines (ZCM) has stated that abolishment of the tax measures makes no difference operationally for the industry.
In June 2020, the Zambia Revenue Authority (ZRA) advised all mining companies to remit their statutory obligations or taxes in dollars and directly to the Central Bank.
In response to a press query, BoZ Assistant Director – Communications, Besnat Mwanza, said from the time that the above measures were introduced, the Central Bank had received a total of US$1.96 billion in taxes from the mining companies.
Ms Mwanza stated that between January 2021 and December 23, 2021, mining firms paid through the Bank a total of US$1.47 billion in taxes.
“Effective June 1, 2020 all tax obligations from the mining companies were to be settled in US dollars. Since September 2018 to May 2020, mining firms were only required to pay their Mineral Royalty Tax (MRT) obligations in US dollars.
“Against this background, in 2020 mining companies paid through the Bank a total of US$489.79 million in taxes,” she said.
Ms Mwanza explained that the measure to compel mining firms to pay their tax obligations in United States dollars had contributed in mitigating the rapid decline in international reserves at the BoZ.
She stressed that it should also be noted that international reserves were primarily used to settle Zambia’s foreign debt obligations and intended to stabilise the exchange rate during times of heightened volatility.
“In this vein and as reflected in the level of the reserves, the Bank has been able to use a huge part of the United States dollar tax receipts to meet these obligations,” Ms Mwanza said.
On calls to abolish the measure, Ms Mwanza said the pressure in the market had mainly been due to demand exceeding supply over a period of time.
This, she said, could be deduced from the fact that the Bank has sold back most of the tax payments it has received from the mining sector to the domestic foreign exchange market.
“In the final analysis, the overall effect of the Bank’s foreign exchange sales has been the observed relative stability of the exchange rate,” Ms Mwanza stated.
And ZCM Chief Executive Officer, Sokwani Chilembo, stressed that the industry was focused on growth.
Ms Chilembo said the abolishment of the measure would therefore make no difference for the sector.
“It makes no difference to us operationally, the challenge still comes back to the need for growth so for us the measure makes no difference because we are focused on growth.
“It is just market activity driving the force, we are just focused on growth because it will address these structural challenges in the financial market,” he said.
A research paper conducted by Zanaco bank argued that dollarisation was hurting the foreign exchange market.
It therefore recommended a reconsideration of the policy especially given that the country’s international reserves had nearly doubled to the US$3 billion.
The paper stated that a reversal would not only bring back the much-needed foreign exchange liquidity on the interbank market at the time that copper prices are tipped to remain north of US$9, 000 in the coming years but would also foster price discovery.
“On the basis of the foregoing, and despite the benefit of a significant dial down in foreign exchange market volatility, we are of the view that the policy has hurt the foreign exchange market more than it has benefited it,” Zanaco stated.
