18 June 2007
Critics maintain opposition to IMF tax proposals, call on government to demand equitable royalty rates for Zambia's lucrative copper mining.
Reuters reports that the IMF has agreed to extend its three-year financing arrangement with Zambia through September, approving a further $33.4 million loan to the country after conducting a review of the country's economic policies and financial position.
In a statement released last week, the IMF's Deputy Managing Director Takatoshi Kato stressed that Zambia must continue to implement its structural reform program, maintain fiscal discipline and pursue policies to further lower inflation. Kato also added that Zambia must also generate "higher levels of tax revenue" before it can increase spending toward its National Development Plan.
A recent report from ActionAid, however, suggests that these recommendations are off the mark. The report entitled "Confronting the Contradictions" documents how the IMF's excessive restrictions on inflation rates have prevented African governments from pursuing poverty alleviation programs, and that many of the structural reforms demanded by the IMF have undermined long-term development goals.
Tax rates have also proven a highly contentious issue in Zambia, where civil servants pay nearly 40 percent of their income in taxes introduced by the IMF in 2004 as a condition for the country to qualify for debt relief. The tax hike and public sector wage freeze prohibiting salary increases and new hires sparked a nationwide strike in February 2004.
In December 2006, the UN news agency IRIN reported that the IMF proposed levying a 17.5 percent value-added tax (VAT) on food, agricultural inputs, transportation, and other basic goods and services to increase government revenues. The proposal was roundly rejected by the Zambian public who argued that the tax would directly hurt the poor.
Rather than requiring regressive taxes which harm Zambia's poor, some feel that the IMF should instead encourage mining companies and the European Parliament to accept an increase in royalty rates on the country's lucrative copper mining industry. In March, the European Parliament denied an appeal by Zambian civil society and the government for a modest increase in royalties on copper projects backed by the European Investment Bank (EIB).
Royalty rates on mineral resources currently stand at only 0.6 percent, well below the 3 percent average rate found in many other countries. Although copper prices are currently at record levels, the generous investment conditions designed to attract mining companies earlier this decade, such as corporate tax exemptions, appear to have brought little benefit to the country.
Resources
- IMF approves $33.4 mln loan disbursement to Zambia, Reuters, June 10, 2007 (Reuters website)
- Press Release: IMF Executive Board Completes Fifth and Sixth Reviews Under Zambia's PRGF Arrangement and Approves US$33.4 Million Disbursement, International Monetary Fund, June 8, 2007 (IMF website)
- Zambia president to discuss mine tax with investors, Reuters, June 15, 2007 (Reuters website)
- Zambia: IMF levy proposal rouses ire of taxpayers, IRIN, December 29, 2006 (IRIN website)
- Anti-corruption advocate endorses renegotiation of Zambia’s mining contracts, Bank Information Center, March 29, 2007 (BIC website)
- ActionAid confronts IMF on impacts of its policies in Africa, Bank Information Center, April 30, 2007 (BIC website)