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Zambia Proceeds With Mining Royalty Hikes

by Lorys Charalambous, Tax-News.com, Cyprus

07 January 2015


Despite threats of reduced production and employment in the mining sector, the Zambian Government has gone ahead with sharp increases in mining royalties, which were first announced in its 2015 Budget in October last year.

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

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

However, the Chamber of Mines of Zambia had immediately emphasized that, although mining companies will no longer be subject to corporate income tax, the increased royalties would cause a shutdown of some mines, which would then be unprofitable.

In fact, last month, Canada-based Barrick Gold announced that it has suspended operations at the Lumwana copper mine in Zambia on account of the plan. Its Co-President Kelvin Dushnisky said that: "Despite the progress we have made to reduce costs and improve efficiency at the mine, the economics of an operation such as Lumwana cannot support a 20 percent gross royalty, particularly in the current copper price environment."

Nevertheless, despite a recommendation from the International Monetary Fund last month that Zambia should reconsider its plan, its acting President Guy Scott assented to the relevant legislation as an amendment to the Mines and Minerals Development Act 2008, and the increased royalties went into effect on January 1.

TAGS: tax | mining | royalties | law | budget | corporation tax | legislation | tax rates | Zambia | tax reform

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