By Jeff Kapembwa
Lusaka - Zambia will seek to resolve the tax impasse with mining companies on a case-by-case basis and will not be cowed into reversing the budgetary decision effected on January 1, 2019, as the decision seeks to maximise revenue from the country’s mineral resources, mines minister Richard Musukwa says.
Musukwa contends that the changes were inevitable despite an outcry by mining companies over the revised taxes, which could reduce Zambia’s revenue receipts from the projected US$1.3 billion to US$840 million. The revised taxes could also see mining companies scale down their investments to US$500 million, raising fears of loss of 21,000 jobs in three years, to remain viable.
Speaking on the sidelines of the 2019 Mining Indaba in Cape Town when he met a delegation from the First Quantum Minerals Limited, Musukwa stated that while government appreciates the concerns raised by mining companies, it will discuss and consider matters on one-on-one basis.
In a statement issued by the Zambian Embassy in Pretoria, Musukwa noted that Zambia, Africa’s second largest copper producer, would not reverse its decision on the introduction Sales Tax to replace the Value Added Tax, effective April 1, 2019.
The decision is meant to maximise revenue and the changes would improve the mobilisation of resources to accelerate developmental projects, particularly since the mining sector contributes a paltry 2% of the Gross Domestic Product (GDP), the minister argues.
But First Quantum Minerals, one of the major mining companies operating in Zambia, that has ploughed in over US$5 billion in new and existing projects and has been key to Zambia’s production of the red metal on the international market says it is willing to remain in the country but the taxation, will undoubtedly hurt its operations and profitability.
Its chairman and former director of operations in Zambia until recently, Philip Pascall argues that it was his company’s desire to remain in Zambia and continue investing more into the sector through explorations, but the tax regime needed to be ‘considerate’ and not stifle the country’s potential through unilateral tax changes, the 10th since 1997 when mines were privatised.
First Quantum Minerals, a Toronto and Vancouver listed miner, operates Kansanshi and Kalumbila copper mines.
The mining taxes revision has also startled the mining lobby group, Zambia Chamber of Mines, which contends that the decision was done in bad faith considering the sector’s contribution of US$13 billion to the treasury since 1997 privatisation.
The mining sector contends further that abandoning VAT would see miners lose over US$600 million in refunds and another US$400 million in operational costs because of delayed refunds over copper sales. The Zambia’s Revenue Agency has disputed owing mining companies in VAT refunds and argues that the sector players owe government instead.
The proposed taxation compels mining companies facing a sliding tax scale for royalties to 6% from the previous 4% with an additional 10% tax when the price of copper exceeds US$7,500 per tonne.