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  3. Mining Firms Urge Cuts In Zambia's New Royalty Rates

Mining Firms Urge Cuts In Zambia's New Royalty Rates

by Lorys Charalambous,, Cyprus

24 October 2014

The increased mining tax framework included in Zambia's 2015 Budget earlier this month has been subject to criticism as, according to the Chamber of Mines of Zambia (CMZ), it will reduce the country's attraction for mining investment and reduce employment.

In his budget speech, Zambian Finance Minister Alexander Chikwanda proposed that, instead of the current six percent royalty for all mines, split levels of eight per cent and 20 percent mineral royalties will be introduced as a final tax on underground mining and on open cast mining operations, respectively.

The measure is intended to increase Government income from the mining sector and, Chikwanda said, to achieve a more equitable distribution of mineral returns between the Government and the mining companies.

However, the CMZ has emphasized that, although mining companies will no longer be subject to corporate income tax, the increased royalties will cause a shutdown of some mines, which would now be unprofitable, and reduce jobs in the sector.

At the same time, CMZ commented on the non-resolution, to date, of the mining sector's complaints concerning Zambian value added tax (VAT) Rule 18, which is causing significant delays to the processing of around USD600m of VAT refunds for exporters or, it is said, has even made claiming refunds impossible.

Rule 18 is intended to allow exporters to recover input tax on exports. However, mining companies that export their products to the international metal markets have been unable to comply with the Rule's requirement that proof of arrival of the exported commodities in the receiving country must be provided before VAT is refunded.

While the Zambia Revenue Authority previously indicated that it would remove the requirement so that mining companies could receive VAT refunds from last month, the CMZ stressed that the mining industry is still awaiting payment of the outstanding VAT refunds.

On his part, Chikwanda had merely commented, in his speech, that "it is Government's desire that these concerns [on the application of Rule 18] are resolved expeditiously and amicably."

TAGS: Finance | tax | business | value added tax (VAT) | mining | royalties | budget | corporation tax | tax rates | Zambia | tax reform | VAT refunds

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