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Report Calls For Competitive Zambian Mining Tax Regime

by Lorys Charalambous, Tax-News.com, Cyprus

20 December 2016


Chamber of Mines President Nathan Chishimba, in his foreword to a report on mining taxation and investment in Zambia, welcomed this year's change to the country's mineral royalty tax (MRT), but pointed out that the country "still has one of the highest effective tax rates compared to other copper-producing countries."

In July 2016, a new MRT was introduced based on a sliding scale that varies between four and six percent, depending on the copper price. The rate is four percent when prevailing copper market prices are less than USD4,500 per metric ton, six percent when prices are USD6,000 per metric ton or greater, and five percent for all prices in between.

A flat mineral royalty rate of five percent is set for other base metals and minerals, except for a rate of six percent for precious metals and gemstones.

The report notes, however, that royalties "capture tax revenue immediately, even though the mine may still be several years from profitability – or may even be making a loss. Royalties are acknowledged to be a blunt instrument."

On the other hand, although corporate income tax is at a much higher rate (35 percent in Zambia), it is only payable when the mine is profitable, and that it can be linked to a system of various allowances, deductions, and write-offs to encourage mining investment by delaying tax payments until upfront costs have been partly or fully recovered.

In that respect, the report adds that "independent studies by various international mining consultancies, the World Bank and the International Monetary Fund, show that Zambia's overall effective tax rate (when all the various taxes, royalties, duties and allowances are taken into account) is still among the highest in the world."

Chishimba concluded that "we believe that it is possible to devise a more competitive mining tax regime that could provide the economic stimulus that will help to grow industry, the wider economy and employment, and ultimately deliver more tax over the long run."

TAGS: tax | investment | business | mining | royalties | corporation tax | tax rates | Zambia | tax breaks | business investment

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