Zambia’s plans to more than triple royalties for some mines are “entirely unsustainable” and will cause several operations in Africa’s second-largest copper producer to shut down, an industry lobby group said.
“Unviable operations will have to stop operating and of course the subsequent loss of jobs is inevitable,” Jackson Sikamo, President of the Zambia Chamber of Mines, told lawmakers recently.
Finance Minister Alexander Chikwanda this month proposed removing corporate income tax for mines and raising royalties instead. Under the planned system, payments will increase to 8 percent for underground operations and to 20 percent for open-cast mines from the 6 percent royalty for all mines that exists currently.
According to Mark Fisher, President of the Copper Unit at Barrick Gold Corp. (ABX)’s Lumwana mine in Zambia, the increase “puts us in a situation that all the hard work we’ve done to keep the operation operating is taken away,” he said expressing that, “It would make it very difficult for us to keep operating.”
While the government is trying to simplify the tax system, it will end up being more complicated, as some companies produce from underground and open-cast mines at the same site, the Chamber’s Sikamo said.
“The proposed changes will lead to a production drop and a loss in investor confidence,” he said.
Zambia, trying to cut its budget deficit, wants to extract more revenue from mines that the government has accused of avoiding tax, claims they deny.
Mines are also owed more than $600 million in value-added tax refunds for failing to provide import receipts from the countries where their copper ends up. The companies say this is nearly impossible as they mainly sell to middlemen.
The new tax system is due to come into effect on Jan. 1, once parliament approves it as part of the national budget. Zambia lost its position as Africa’s biggest copper producer to the Democratic Republic of Congo last year for the first time in nearly three decades.