A mining tax that hit profits and slowed production in Zambia will be rolled back next week, The Wall Street Journal reported.
Zambia is the Africa’s second-biggest copper producer. In a bid to increase the tax revenue generated from its copper mines, Zambia scrapped corporate income taxes in October but required open-pit mines to pay up to a fifth of their revenue in royalties, up from 6 percent previously. Underground mines were told to pay 8 percent royalties, also up from 6 percent.
Glencore and First Quantum Minerals Ltd. both shelved expansion projects worth $1.5 billion. Barrick threatened to close its Lumwana Copper Mine, and overall copper production dropped 10 percent annually in the first quarter of 2015, Zambia’s central bank said.
As of July 1, the government is expected to revert to the 30 percent corporate tax and softer royalties of 9 percent on openpit mines and 6 percent on underground operations, The Wall Street Journal reported.
The return to the corporate tax structure is expected to be a windfall for foreign miners, including Glencore PLC and Barrick Gold Corp. At the same time Zambia’s government, which derives a third of its revenue from the sector, is likely to take a sizable hit to its coffers, making it more difficult to meet development goals.
Zambia’s running feud with these companies has become a litmus test for dozens of African countries seeking to balance compensation for their mineral wealth with conditions that will attract investment.
Mines fuel about half of Zambia’s economy and 67 percent of exports, according to the Extractive Industries Transparency Initiative, but contribute just 30 percent of the government’s tax revenue.
“We listen very, very well to the mining industry,” Christopher Yaluma, Zambia’s mining minister, said at a copper industry conference earlier this month in Zambia’s capital. He added the negotiations had included “some not very, very lovely notes,” from mining executives.
But one point of contention remains unresolved.
The Chamber of Mines of Zambia says major copper miners are owed nearly $800 million in value-added tax refunds stretching back to 2013. “Clearly it’s unhelpful, there’s no doubt about that,” said John Gladston, head of government affairs for First Quantum in Zambia. He said First Quantum is owed about $250 million in VAT refunds.
Steven Din, chief executive of Konkola Copper Mines PLC, a subsidiary of Vedanta Resources PLC, said the withheld VAT costs the company about 16 percent on everything it produces. That means Konkola’s smelter has been operating well below capacity, said David Paterson, the company’s vice president of local economic development.
Still, Din said the mining industry’s relations with Zambia’s newly elected government are improving. “A lot of good work has been done,” he said.