Visit to Ministry of Finance and Zambia Revenue Authority

1. Visit to Ministry of Finance and Zambia Revenue Authority Group I Presentation

2. Introduction Group 1 met with the Commissioner General of the Zambia Revenue Authority, the Auditor General, staff from the Accountant General’s Office and other departments in the Ministry of Finance The purpose was to learn from their experiences in the management of public funds, in particular collection of revenue from the mining sector The purpose was also for members to share their own experiences

3. Introduction Contribution of mining sector to GDP is only 4 % Taxation regime for the mining sector intended to promote investment in the sector and raise more tax revenue for the State Introduced various tax concessions to mining companies Minimum overall tax rate for mining companies is 30 % and maximum 45 % All large mining companies foreign controlled. Government stake in some between 15 and 30 percent Privatisation substantially reduced Government stake

4. Successes/Lessons learnt Revenue Authority introduced a specialised mining unit dealing with all mining companies Unit has 19 staff members up from 6 a few years ago Department has invested heavily in training and capacity building of staff, thanks to support from cooperating partners such as Norwegians, OECD and IMF Now has quite a number of specialised skilled manpower For example some mining engineers being trained and employed as tax administrators Auditor General reasonably well-staffed (300 chartered accountants)

5. Successes/Lessons Learnt Audits have resulted in an increase in revenue collected from the mining Improvement in disclosures due to self assessment system and strengthened tax administration and various other policy reforms Introduction of transfer pricing legislation so that transactions between related companies done at arms length Unit of internal affairs in the department to deal with corruption issues. Unit housed elsewhere and proved quite effective

6. Successes/Lessons Learnt Developing resource value monitoring mechanism to deal with problem of under-declaration of output and revenues generated Zambia renegotiating some of the double taxation agreements to address issues of tax avoidance Supporting work of PAC to enhance oversight PAC and Auditor General recommendations implemented in most cases Public finance management legislation being reviewed to address concerns of PAC and Auditor General

7. Challenges Still lack adequate specialised staff to monitor production, including the quantity and quality of output produced and exported Natural resources fast depleting without corresponding benefits to the populace Auditor General has no mandate to audit companies where government has no controlling stake Role of AG is to reconcile figures that mining companies say they have paid and what Revenue Authority has received Valuation of minerals not traded internationally is difficult

8. Challenges Transfer pricing a major problem although legislation is being introduced to try and curb the problem Auditor General still facing shortages of staff Some of the double taxation agreements are very old resulting in “treaty shopping” by large mining companies to minimise tax payments The coming into full force of the Extractive Industries Transparency Initiative should assist address some of these challenges