Zambia to slash royalties, reinstate mining tax

Zambia’s government is getting ready to cut royalties for underground mines below the recently revised 9% next week, putting an end to a nearly nine-month standoff that has hit output and profits in Africa’s second largest copper producer.

 

A return to lower levies should be a windfall for mining companies operating in the country, such as Canada’s Barrick Gold (TSX, NYSE:ABX), Glencore (LON:GLEN) and First Quantum Mineral (TSX:FM), Zambia’s largest foreign investor, all of which slowed operations as the taxation dispute raged.

 

The country’s authorities scrapped corporate income taxes last October, in a bid to increase that stake and narrow its budget deficit. At the time they said they would continue to ask open-pit mines to pay up to a fifth of their revenue in royalties, up from 6% previously. Underground mines were told to pay 8%, also up from 6%.

 

The move soured the already fractious relationship between the government and miners, triggered job losses warnings estimated at one point to leave over 12,000 people unemployed.

 

But as of July 1, the government will revert to a 30% corporate tax, which many firms elude claiming they aren’t profitable, WSJ.com reports.

Zambia is also set to cut mining royalties even further — 9% on open pits and 6% on underground operations.

Withheld value-added tax refunds, however, continues to be a point of contention.

 

For years, local authorities have been declining such refunds from mining companies and other exporters, which they say have not produced import certificates from destination countries — a step the government considers key to full transparency.

But miners argue it is impossible to do because third parties trade their commodities.

 

According to data from Chamber of Mines of Zambia, major copper miners are owed nearly $800 million in value-added tax refunds stretching back to 2013.

Mining.com