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AMN - Zambia’s tax proposals will hit mining – comment by Yolanda Torrisi

Yol headshot May 2011

The mining industry in Zambia is rightfully concerned about the likely impact of proposed new changes to the country’s mining tax regime. The Association of Zambia Mineral Exploration Companies (AZMEC) fears the changes will hit mineral exploration and production in Africa’s second-biggest copper producer.

In its 2019 budget unveiled in September, the Zambian government announced new tax measures in efforts aimed at getting more revenue from the mining sector, which accounts for about 70 per cent of the country's foreign exchange earnings, in order to rein in debt.

Finance Minister Margaret Mwanakatwe said the government intended to increase mineral royalty rates by 1.5 percentage points at all levels of the sliding scale as well as introduce a fourth-tier rate at 10 per cent on the sliding scale mineral royalty regime which would apply when copper prices rose beyond US$7500 per tonne.

The government intends to make mineral royalty tax non-deductible for income tax purposes and introduce an import duty at the rate of five per cent on copper and cobalt concentrates. It also proposes to introduce an export duty on precious metals, including gold, precious stones and gemstones, at the rate of 15 per cent.

In delivering the budget, Mwanakatwe said: "Our nation is endowed with vast mineral resources which transcend beyond copper and cobalt. As mineral resources are a depleting resource, it is vital to structure an effective fiscal regime for the mining sector to ensure that Zambians benefit from the mineral wealth our country is blessed with.”

AZMEC president Geoffrey Mulenga said in a statement the measures proposed in the budget would not help the growth of the nation’s mining sector and would affect the potential to conduct mineral exploration.

He said proposed measures would have negative consequences for the mining sector as they were contrary to the government's policy of increased mineral exploration and growth of the mining sector.

Mulenga said mineral exploration was an inherently high cost, high-risk activity and he added that no new viable copper discoveries had been made over the past 10 years in the country.

"Since Zambia's independence, only two discoveries have been made. Dramatically increased exploration activities are now required, more than ever, if Zambia is to remain a leading copper producer."

The AZMEC president said unless new deposits were discovered and developed, the mining industry in Zambia would continue to stagnate and ultimately contract with negative consequences for the nation as tax collection, employment, suppliers and export revenue all contracted.

Mining companies active in Zambia have also expressed their concerns with a number saying that expansions plans would be at jeopardy. Companies such as First Quantum, Glencore and Vedanta Resources, have previously expressed strong concerns with the government over rising operating costs.

The government has promised to put in place a committee to review the tax proposals in consultation with stakeholders and it is to be hoped for the sake of mining in Zambia that the industry’s concerns are taken into account.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact:yolanda@yolandatorrisi.com