Zambia’s cabinet approved proposals for a mining-tax system that will be based on profits and royalties and will do away with the plan that increased minerals royalties to 20 percent and dropped income tax for mines.

The change is made so that the government can monitor mining companies that have been accused of avoiding taxes, Bloomberg reported.
Vincent Mwale, an acting government spokesman, told Bloomberg that there will also be a 15 percent variable profit tax and the proposed changes will be effective on July 1, once parliament has approved them, he said.

“Cabinet has stressed that the approved mining-taxation regime will bring about the desired stability, predictability, consistency and transparency in the mining sector,” Mwale said.

Africa’s second-biggest copper producer in January increased mineral royalties to as much as 20 percent from the previous 6 percent and dropped income tax for mines. While Finance Minister Alexander Chikwanda said the new system would boost transparency, Barrick Gold Corp. said it would halt operations at its Lumwana operation because of the changes and lower copper prices. The Zambia Chamber of Mines said the new system would result in 12,000 job losses this year.

The government’s revenue collection will drop by less than US$312 million as a result of returning to a royalties and profit-tax system, Mwale said.
Under the proposed changes, profit tax on processing minerals will be 35 percent. Companies including Vedanta Resources Plc, Glencore Plc, First Quantum Minerals Ltd. and Jinchuan Group Co. own mines in Zambia.

The announced changes follow “cordial and fruitful discussions” between government and operators, Zambia Chamber of Mines President Jackson Sikamo told Bloomberg. While the industry body is yet to form a position based on its members’ feedback, it is happy over the principle of returning to a two-tier tax system, he said.

Barrick will study the proposed changes and “provide an update regarding operations at Lumwana in due course,” Andy Lloyd, a Toronto-based spokesman for the world’s biggest gold producer, said in reply to e-mailed questions.

President Edgar Lungu inherited the new tax system when he was voted into power following the October death of Michael Sata, his predecessor. Chikwanda had resisted criticism from the industry and the World Bank over the change, saying the previous regime was “illusory” as only two mines paid tax.

Lungu has taken a conciliatory approach in dealing with mining companies as he tries to stave off job cuts after copper prices fell to the lowest in five years in January. On Feb. 23, he loosened tax regulations for exporters including mines, making it easier for them to get value-added tax refunds.

The reintroduction of profit taxes for mines follows Lungu’s instructions to Chikwanda and Mines Minister Christopher Yaluma to draft changes to the royalties-only system last month.