DISCUSSING ALTERNATIVE ECONOMIC SOLUTIONS WITH MR. SEAN TEMBO- HIS SOLUTIONS ARE BUILT ON WRONG ASSUMPTIONS
By Alexander Nkosi
A few days ago, Mr. Sean Tembo shared an article where he argued that by making mineral royalties tax deductible, government was losing USD5 billion per year. While I also want us to get the best from our mines, I find his alternative policy proposals incorrect and inconsistent. Let me explain this with fine details, making reference to correct figures and demonstrating how Mr. Tembo’s USD5 billion allegation contradicts his own alternative budget.
Let me start by highlighting 2021 and 2022 domestic revenue and total tax revenue so that readers understand how these two compare with the USD 5 billion (K90 billion) Mr Tembo is alleging we are losing as a result of re-introducing tax deductibility of mineral royalties when calculating CIT. Total domestic revenue in 2021 budget was K66 billion and total tax revenue was K53 billion. In 2022 budget, total domestic revenue is K98.9 billion and total tax revenue is K77.9 billion.
Government made mineral royalties tax deductible resulting in K3.2 billion revenue loss as indicated by the Minister of Finance. However, in his submission, Mr. Tembo indicated that the minister said the revenue loss from this measure was USD2.6 billion (K46.8 billion). This is not correct, he misquoted the Minister of Finance. He further indicated that even the USD2.6 billion was an understatement as according to his calculations the correct figure was USD 5 billion (K90 billion). This is more than the total tax revenue for 2022. It is is also way more than domestic revenue for 2021.
During his budget speech, the minister said, “Madam Speaker, to attract investment and boost production in the mining sector, I propose to re-introduce the deductibility of
mineral royalty for corporate income tax assessment purposes. This measure is in
line with international best practice. The revenue loss from this measure is projected
at K3.2 billion.” In Mr. Tembo’s own alternative budget, he put mineral royalty tax at K17.5 billion and CIT at K29.5 billion. These two combined give us K47 billion, so why is he now arguing that making mineral royalties tax deductible led to a USD5 billion revenue loss when his own alternative budget where this was reversed targeted to collect USD47 billion from mineral royalties and CIT?
The challenge is while some people are opposed to the IMF deal, they have not come forward with any practical solutions on how to deal with our huge debt and attract both local and foreign investments. They further wrongly assume that pursuing an IMF deal means abandoning local solutions. The reality is that we need breathing space to realistically pursue our local solutions and this is where IMF deal comes in.
Thank you.