LUSAKA – Zambia will not replace its value-added tax (VAT) with a non-refundable sales tax, Finance Minister Bwalya Ng'andu said on Friday, a major concession to mining companies that fiercely opposed the proposal.
Zambia, Africa's second-largest copper producer, is grappling with high debt levels and the effects of a severe regional drought which has depressed economic growth.
"Government has decided to maintain the Value Added Tax, but address the compliance and administrative challenges," Ng'andu said in a budget speech.
Since being appointed in July, Ng'andu has sought to mend fences with the mining industry, after relations soured over proposed tax changes and a dispute over Vedanta Resources' Konkola Copper Mines.
The minister said government would also remove a tax on capital equipment and machinery for mines, and reduce the capital allowance claimed by mining companies for capital expenditure to 20% from 25%.
Zambia would, however, limit VAT claims on electricity by mining companies to 80% from 100%, he said.
Presenting a 106-billion kwacha ($8.1-billion) budget, Ng'andu said he would limit Zambia's fiscal deficit to 5.5% of GDP in 2020 from 6.5% this year.
To ensure debt is maintained within sustainable levels, the government would slow down debt accumulation, postpone or cancel some undisbursed loans and cease issuance of government guarantees, Ng'andu said.
Zambia is targeting gross domestic product growth of at least 3% next year from an estimated 2% this year, after a drought affected crop production and electricity generation at hydropower plants.