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Saturday, 6 June 2015

Zambia's mining taxes collapses

Government has cut mineral royalties for underground mines to 6 percent, lower than the 9 percent which was expected to take effect on July 1. Presidential aide Amos Chanda has told Reuters that “Mineral royalty tax will be reduced to 6 percent from the earlier proposed 9 percent. It will remain at 9 percent for open pit mines”

The 2015 Budget had introduced a new fiscal regime that set underground mining royalty at 8% and open pit mines at 20%. This was reversed in April when all the royalties were set at 9%. We noted at the time that the changes did not make sense for underground mines because it meant an increase of 1%. Given the cost for underground mines are higher they should have lower royalty taxes compared to open pit, otherwise the incentives become skewed.

It is shocking that government is making these elementary policy development mistakes. We cannot understand why the Ministry of Finance is so incompetent in the way it conducts its policies that pays no attention to how policies change incentives for investment. Where are the economists in government? Is there really no one in all of government capable of seeing such elementary issues?

To make matters worse, it now appears that the public has been grossly misinformed about the scale of the government reversal. We are back where we started last year with only 3% increase in royalties for open pit mines. We will need to wait for the revised Budget this month to get a sense of how much government plans to borrow through another Eurobond to meet the funding gap.

Chola Mukanga 
Copyright © Zambian Economist 2015 

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  1. I think corruption is involved.

    They get into office with a high tax rate, and behind closed doors it is reversed downwards.

    Perhaps a job for interpol? The UK or US Justice Department, where the bribers are likely from?

  2. Mr.K high taxes where a bad idea in the first place. I don't suspect any corruption, it is a step in the right direction. What is required is for us to build our own mines by attracting investment.

  3. Dear Editor
    The change in taxes is entirely predictable. The simplest economic model would have told the MoF that the MRT changes would drive many mines into negative cashflow, and any one with commercial experience would know that then they would have to halt production.
    Whats missing here is a professional approach to taxing the mines (and other tax payers in Zambia). By which I mean designing good, robust legislation which addresses fears over tax avoidence (and for which Zambia badly needs the help of external experts) and then a change in mind set at the ZRA - so improving capability and capacity, and not just saying that they can't deal with the mines - and being not only allowed but actually required to apply taxes consistently to all - not just those who don't have patronage or special deals.
    All of the noise about the mines is a useful distraction from the lack of tax contribution from other sectors in Zambia, and so unlikely to stop any time soon.
    I don't see corruption or conspiracy in these changes but I do see a lack of professional standards and joined-up thinking.

  4. Taxes are better than borrowing. You don't need to pay interest on taxes. And they're just taxes on resources that belong to the people to begin with.

    And, there is a limit on the amount of taxes that can be levied. There is no limit on the amount of debt that can be incurred through borrowing with interest.

  5. I want to know about late return of mineral royalty penaltys if that time i have a texabal zambia


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