Mineral Royalty Taxes to have devastating impact – FQML

Concerns over the revised mineral royalty taxes in Zambia have continued with the country’s leading miner First Quantum Minerals Limited raising fears that the proposals to review the regime will have devastating impact on the country’s mining sector and deter capital investment and new projects.

Recently First Quantum Minerals announced plans to waive its planned US$1 billion investment in Zambia on account of ‘unreliable mineral policies’ in the industry and that it would seek to observe the developments before proceeding with its intended plans.

However, with the recently announced review in mineral royalties, as announced in the presentation of the 2015 budget by Finance Minister Alexander Chikwanda, the First Quantum Minerals says the proposed redesigned mining fiscal regime will deter capital investment in existing and new mining projects.

Citing FQML Government Affairs Manager John Gladston, the Times of Zambia reveals that FQML which operates Kansanshi Mine, the eighth largest copper mine in the world and the country’s biggest mining producer of copper and gold in Zambia, says the 2015 Budget does not provide incentives to the mining sector.

The new mining tax system did not encourage investments in new capital projects and that would inevitably lead to fewer new jobs and less opportunities for wealth creation in Zambia’s mining sector, adds Gladston who was reacting to the announcement by Finance Minister Alexander Chikwanda.

Government had by October 10 decided to increase the mineral royalty threshold for open cast and underground mining operations to 20 per cent and 8 per cent respectively in next year’s Budget.

According to Gladston, the 2015 budget address seems to confirm that FQML’s logic earlier in postponing of additional capital projects, which include the smelter expansion and sulphide processing expansion at Kansanshi jointly valued at more than US$1 billion in Solwezi.

“As the largest corporate tax payer in Zambia, First Quantum will have to wait for the actual implementation of the minister of finance’s 2015 budget address to analyse the full impact of the renewed tax system,” Gladston said.

“On the face of it, however, the new system doesn’t incentivize investment in new capital projects which in turn, will inevitably be translated into fewer jobs and less opportunities for wealth creation for Zambians,” he added.

And the Kitwe District Chamber of Commerce is equally concerned with the fiscal changes in the tax regime saying the increase in mineral royalty taxes for the mining sector will greatly affect the operations of the mines.

This decision according to Kitwe Chamber President Raj Karamchand mean most mining companies will find challenging to start new projects because of the high taxes.

Karamchard adds that production costs will also go up as a result of the increase in mineral royalty taxes, a view that has been contradicted by Economist at the Copperbelt University Sumbye Kapena, who has welcomed the increase in mineral royalty taxes.

Kapena says more needs to be done in the next budget to ensure the country realizes more returns from its mineral wealth as it seeks to improve the economy.

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