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Tuesday, 14 April 2015

Mining Tax Reversal, 2nd Edition

President Lungu is in the process of tabling a revised Budget as Cabinet abandons elements of the Sata mining fiscal regime following pressures from mining companies. Full press statement from the Lungu administration below :
Cabinet has today approved changes to the Mineral Royalty Tax regime and His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia directed ministers to bring to Cabinet next Monday details to be presented to Parliament for approval.
This follows extensive consultations with the mining industry in the light of significant changes in the fundamental assumptions upon which the law was based and the sudden fall in the price of copper on the international market.

The budget approved by Parliament had the assumption that the price of copper was going to be US$6,780 per tonne but this has reduced to US$5,665 representing a reduction of $1,115. Production, which was also assumed to likely, stay at a peak of 959,696 tonnes has since dropped to 839,000 tonnes representing a drop by 130,696 tonnes.

All administrative and legislative procedures to effect the changes will be completed before the next cabinet meeting.

These measures will have revenue implications given the fact the basic assumptions in the budget regarding the price of copper and production have changed downwards.

The changes to the MRT regime will have revenue implications requiring rationalization of expenditure, which the Minister of Finance has been directed to present to Parliament.

The President has also directed that the Technical Committee he appointed to interrogate the challenges that arose from the MRT regime will continue with consultations with stakeholders to ensure a robust and predictable mining tax regime, which will be linked to the Medium Term Expenditure Framework.

The President hopes that the changes will promptly eliminate market anxieties in the mining sector and forestall any potential instability.

(Source: State House)
We will wait to see the details of the proposal. The fiscal position is as expected. As we have previously noted without the current fiscal regime the Budget collapses and more borrowing will be necessary. Keeping the current fiscal regime also translates in monetary and fiscal chaos and more borrowing. It is chaotic policy making at its worst.

What is more puzzling is that the press statement is not even honest about the reasons for this reversal. It seems to blame poor projections at the Ministry of Finance. If that is the case, shouldn't someone be fired? We have long predicted lower copper prices, it is difficult to see how the Ministry of Finance can make such basic errors. And the reduction in copper production as a result of the regime was also easy to predict given the bargaining power of mining companies and scale of changes.

Chola Mukanga
Copyright © Zambian Economist 2015


  1. I am just wondering who is sitting on this technical committee. None of these committees have done a good job in the past. Our mining tax regime has seen so many changes in the past and almost all changes have been met with resistance from the mining sector and the government has had to revise the positions. Question is, is there wide consultation with stakeholders before implementation of these tax regimes? There is clearly an expectations Gap in terms of what the mining companies are contributing to the treasury and what the Government expects and I wonder whether the Government knows how much profit each of these mining companies should ideally make as a basis for projecting tax revenue contributions to the treasury. Otherwise we may just be speaking from without. There is need to come up with a regime that will stand the test of time. This can be achieved by getting the right mix of experts to sit on the so called Technical Committee, people who have a greater understanding of the way mines do business and Zambia is not short of such experts. Secondly, there must be wider consultation with all stakeholders. Government in its policy shift or lack of shift must encourage transparency and not shroud the whole process in secrecy. We cannot be wasting time as a country where today you come up with a tax regime and tomorrow you change it and surely there are people so called experts who are paid "taxpayers'" money for not doing a good job. It is time we got serious with the affairs of our nation. You cannot come up with a simplified tax regime because you have no capacity to efficiently audit the mines. Best thing you do is build capacity to audit these mines. Capacity should be built from a tax, accounting and metallurgical engineering positions.

  2. Benson. Where have you been hiding? I haven't heard so much sense spoken on this subject in an age. The fact is Foreign Investors need to turn a profit. Inconvenient to elements of the PF but true. In turn GRZ must realise roylaties on the minerals extracted and tax revenue on the profits. Not beyond the with of man to realise that sufficient GRZ capacity needs to be puit in place to enforce that mutually beneficial symbiotic relationship that creates jobs and wealth. It also shouldn't be beyond anyone to realise the design of that tax architecture remains critical as does its stability.

    The financial press are saying we will see 9% royalty and 30% profit tax. How exactly has GRZ arrived at these figures? What modelling has been done? It doesn't stack up. No-one will invest in Zambia at 9% royalty.


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