Zambia Brings Back Mine Profit Tax as It Alters Royalties

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Zambia’s cabinet approved proposals to return to a mining-tax system based on profit and royalties as it boosts efforts to monitor mining companies it’s accused of tax avoidance.

Income tax will return to 30 percent and royalties will be a uniform 9 percent, Vincent Mwale, an acting government spokesman, said in an e-mailed statement. There will also be a 15 percent variable profit tax and the proposed changes will be effective on July 1, once parliament has approved them, he said.

“Cabinet has stressed that the approved mining-taxation regime will bring about the desired stability, predictability, consistency and transparency in the mining sector,” Mwale said.

Africa’s second-biggest copper producer in January increased mineral royalties to as much as 20 percent from the previous 6 percent and dropped income tax for mines. While Finance Minister Alexander Chikwanda said the new system would boost transparency, Barrick Gold Corp. said it would halt operations at its Lumwana operation because of the changes and lower copper prices. The Zambia Chamber of Mines said the new system would result in 12,000 job losses this year.

The Government’s revenue collection will drop by less than 2.3 billion kwacha ($312 million) as a result of returning to a royalties and profit-tax system, Mwale said by mobile phone. Chikwanda will next week present to cabinet proposals on how to deal with the shortfall, he said.

Glencore, Vedanta

Under the proposed changes, profit tax on processing minerals will be 35 percent. Companies including Vedanta Resources Plc, Glencore Plc, First Quantum Minerals Ltd. and Jinchuan Group Co. own mines in Zambia.

The announced changes follow “cordial and fruitful discussions” between government and operators, Zambia Chamber of Mines President Jackson Sikamo said by mobile phone. While the industry body is yet to form a position based on its members’ feedback, it is happy over the principle of returning to a two-tier tax system, he said.

Barrick will study the proposed changes and “provide an update regarding operations at Lumwana in due course,” Andy Lloyd, a Toronto-based spokesman for the world’s biggest gold producer, said in reply to e-mailed questions.

President Edgar Lungu inherited the new tax system when he was voted into power following the October death of Michael Sata, his predecessor. Chikwanda had resisted criticism from the industry and the World Bank over the change, saying the previous regime was “illusory” as only two mines paid tax.

Lungu has taken a conciliatory approach in dealing with mining companies as he tries to stave off job cuts after copper prices fell to the lowest in five years in January. On Feb. 23, he loosened tax regulations for exporters including mines, making it easier for them to get value-added tax refunds.

The reintroduction of profit taxes for mines follows Lungu’s instructions to Chikwanda and Mines Minister Christopher Yaluma to draft changes to the royalties-only system last month.

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