"Foreign owned mining companies are currently expected to pay a 15 per cent profit variable tax, 30 corporate tax and 3.0 per cent mineral royalty. But last year, Zambia signed an agreement with Lumwana Mining Co., a unit of Equinox Minerals, granting it tax waivers up to 2017 to enable the company to pay back its debts and also still provides exemptions to other firms investing in established economic zones."Reuters on the confused world of Zambia's mining fiscal arrangements. As I have previous noted when LPM initiated the Mines Development Act, it abolished all existing DAs. The idea was that all mining investment should now face the same fiscal rules. But alas, Lumwana maintains it's own DA (see previous discussions on this here and here). It also looks likes other new mines may also have their own DAs struck in dark corners. The situation is utterly confusing. To make it worse, there's no transparency on these DAs. The government should clarify where we stand on these new DAs. When was the last time you read the Lumwana DA?
In case you wondering why all of this matters, the following illustration by Dr Mpande should help :
Imagine a new running project in north Western Province producing 170,000 tonnes of copper, some amount of gold and silver. The area has no infrastructure and will require a public railway line of 640 km at K5 billion 1km and electricity up grading costing $5 billion, 100 graduate engineers, 500 technicians.
The economic parameters are that copper alone will sell at $5,000/tonne over 20 years. Costs of production is estimated to be $2,500/tonne. Revenue per year will be 170,000 x 2,500 = 4.250,000,000 or $85 billion over 20 years. The company borrowed the capital to invest in the mine and will therefore not pay substantial taxes even if it were making profits because it has a 10 year tax holiday.
The Zambian economy will forego the anticipated mining revenue and bear all the infrastructural costs. As a result of such investment, the net debt for the Zambia economy will not reduce and revenue to invest in education, health and infrastructure will not materialize.