By Chambwa Moonga
DR FRED M’membe says the UPND has continued on the same PF path of lack of innovation, generation of new ideas and strict adherence to the same modus operandi.
Reacting to the 2022 budget that was announced in Parliament last Friday, Dr M’membe, the Socialist Party president, said from their posturing, boasting and unending promises of a paradise – a heaven on earth – the UPND government was expected to do better in their first budget than what they have done.
“But it seems they are still in their unending campaign mode of making unnecessary promises of being MacGyver who will easily fix this and that. They have promised heaven but they seem to have serious difficulties delivering even purgatory,” Dr M’membe said.
He said the 2022 national budget was expansionary yet with tax concessions given to mining corporations, a clear demonstration that they were about to surrender Zambia’s sovereignty to capital and not the people.
“Suffice to say, we are known as the second largest producer of copper in Africa. By implication, the copper industry is the most important part of our economy. Be that as it may be, this sector has only been contributing an average 13 per cent to our GDP (gross domestic product) before the pandemic hit and around 25 per cent after the pandemic hit us due to disruptions in trade and global supply chain,” he said. “Ironically, it’s the retail business and PAYE (pay as you earn) that have been the major contributors to our GDP, meaning our country’s economic prospects are funded by poor people for the benefit of the rich.”
Dr M’membe explained that out of the eight major mining corporations operating in Zambia, only two companies had been paying Company Income Tax (CIT) in the last 25 years.
He said the rest have been declaring losses as the Zambian tax authorities had no capacity to find loopholes in their tax declarations.
Dr M’membe said base erosion and profit shifting (BEPS) seemed to be very easy for the mining corporations.
He said to maximise value from “this sector”, the Zambia Revenue Authority (ZRA) proposed the introduction of Mineral Royalty Tax (MRT) to bring certain “loss making” companies on the tax base.
He added that MRT was not a fee, but a tax.
“Currently, it’s paid as final tax by both loss-making and profit-declaring mining corporations as a final tax. So, it is net tax income to the Zambian people,” Dr M’membe said. “At the time when the copper prices are historically high, the UPND government has proposed in the 2022 budget that MRT becomes a deductible tax. Meaning whatever loses they make off CIT can be netted off MRT.”
He added that such may result in a significant resource mobilisation loss.
“In the end, the only benefits we may get from the mining sector are only business and job opportunities and PAYE,” he noted.
Dr M’membe said a named mine which the UPND government was targeting to benefit from under the concessions would make super profits and externalise the money.
“There is no law that will hold them accountable for the promise of the US $2 billion [that] a named mine has promised to invest in Zambia. Moreover, in the unlikely event that decency prevails, the named beneficiary mine will use the same extra money saved from tax concessions after exporting Zambian minerals to reinvest in Zambia,” he said. “It’s public knowledge that only a named corporation had a legitimate complaint regarding double taxation with non-deductible MRT and Company Income Tax.”
He asked why the brains in the government could not address that specific issue, instead of mutilating the revenue base from the industry.
Dr M’membe said one option was to reduce income tax to five per cent from 35 per cent or even reduce to zero per cent and compute MRT at a level that protects Zambians.
“Why do mining corporations love income tax? Simple transfer pricing and exaggeration of costs to declare lower taxable income! Why do they hate MRT? It’s based on extracted minerals and easy to administer by ZRA and difficult to cheat,” he said.
Dr M’membe urged Zambians to remember that countries with deductible MRT and lower taxes in mining had higher stakes or even controlling shares in private mining corporations.
“So, they collect lower taxes and get dividends. In Zambia some mining companies are 100 per cent privately owned. Why such concessions? If Parliament has any spine, this is the time to show it,” he said. “Moreover, government just added K4 billion non-discretionary expenditure by hiring 40,000 people at one go. It looks good on paper as a percentage of GDP, but that is a lot of pressure on the treasury given that our wages plus debt service is equal to 114 per cent of domestic revenues.”
Dr M’membe continued, saying: “at the very least, pretty much all non-wage expenditure is coming from borrowing, which is unsustainable.”
He noted that given the UPND promises on debt contraction, one would have expected them to match their words with action by reducing on both domestic and foreign debt.
Dr M’membe said if the UPND government were going to borrow $4.2 billion in one year yet reducing on the tax base, then they were further plunging the country into a vicious debt cycle.
“Like PF, the UPND are continuing on the path of funding their budgets through debt. When you start funding education – the building of schools – from borrowings – then you know you are on a very dangerous path,” he said. “For many reasons – economic, cultural and otherwise –
education should be funded from your own generated resources no matter what the difficulties or challenges.”
Dr M’membe said the UPND government seemed to have no ideas on how to reduce the budget deficits yet they had unnecessary think-tanks on their payroll like the Zambia Institute for Policy Analysis and Research (ZIPAR), Policy Monitoring and Research Centre (PMRC) and National Economic Advisory Council, “who get paid for doing nothing and don’t even apply for competitive consultancy works for sustainability.”
“You have 14 grant-aided institutions under the Ministry of Health that are embroidered in the duplication of efforts,” he said. “You have unnecessary courts, unnecessary service commissions and other grant aided institutions that can be merged and leverage on the usage of IT, Internet of things and block-chain for less cost and less time while having more impact on productivity.”
Dr M’membe also noted a significant increase in Constituency Development Fund (CDF), with no systems in place to manage that.
“As Socialist Party, decentralisation is one of our key pillars but it has to be done in a well thought out manner, beginning with the transfers of key officers from the ministries that have been merged so that Lusaka only plays an oversight role. What has been assured is the what; the how has not been clearly stated,” he said.
M’membe said the Socialist Party expected the UPND government to give a clear policy direction on the importation of fuel, especially through some government-to-government arrangement or private sector participation.
“In a word, they have continued on the same PF path of lack of innovation, generation of new ideas and strictly adherence to the same modus operandi,” said Dr M’membe.