Login
Mining

New Mining Tax: digging a hole?

Multinational mining companies operating in Zambia — including from SA, Switzerland, Australia, Brazil, Canada, England and China — have complained about the government’s new mining tax regime, saying it will increase costs and make the country "uninvestable".

In her 2019 budget presentation in September, finance minister Margaret Mwanakatwe announced a 1.5% increase on all mining royalties from 6%, and the introduction of a 10% royalty rate that will apply when copper prices rise above USD$7,500 a tonne. 

She said the increased revenue collection from mining — expected to rise from USD$250 million to USD$340 million — would benefit Zambians, who have long felt that they do not get a fair share of the country’s mineral wealth.

But the move has met resistance, with industry body the Zambia Chamber of Mines (ZCM) saying after an emergency meeting with its members on October 5 that the government had introduced "a budget that would break the back of Zambia’s economy and a tax change that would make Zambia uninvestable".

According to ZCM president Nathan Chishimba, in July the chamber submitted a 10-point plan to double copper production and add USD$1 billion to state coffers each fiscal year by 2024. While full details of the plan have not been made public, it is known that the ZCM asked the government to maintain or lower the 6% royalties threshold in return for increasing production from current levels of 800,000 tonnes a year to 1 metric tonnes.

"Unfortunately, our plan has been ignored. Instead, the raft of measures introduced will have exactly the opposite effect," Chishimba said last month.

"A number of operations will be pushed into loss-making positions and will likely have to scale back. Those already making losses will be pushed further into the red. And some of our members have had to immediately put on hold their expansion plans, which are the lifeblood of future production.

"Let us be clear, these higher tax rates will not result in more tax revenue. Quite the opposite. As industry production shrinks through the impact, there will be fewer jobs and less taxes, and as a result there will be less in the government’s bank account for many years to come."

Chishimba believes the budget has brought "more tax regime instability". He says, "Huge increases and novel taxes not seen anywhere else in the world will hurt the mining industry and all those who rely on its success."

Though the finance minister suggested at the time that she was open to dialogue with mining companies, parliament went ahead and approved the taxes in October. Chishimba is concerned that this could lead to a repeat of events in 2016, when the government changed regulations around mining taxes three times after companies put their mines under care and maintenance. However, he is hopeful that there’s still room for dialogue with government.

Economist Chibamba Kanyama believes this is likely when the effect of the tax becomes clear. "My projection is that as the actual impact of the new tax regime becomes real by April, the government and mining companies will come together," he says. "However, all this depends on how prepared authorities are to counter the manoeuvres by mining companies to ‘arm-twist’ the government into submission."

Lubinda Haabazoka, director of the Graduate School of Business at the University of Zambia, does not subscribe to the ZCM’s idea of lowering — or at least maintaining — taxes to support increased copper production, because it won’t properly benefit Zambians themselves. "As a country we are not interested in that amount because the more they produce, the more we lose because their contribution to government tax revenue is insignificant," he says. Haabazoka echoes a popular view that the country can do better from the mining sector than the current 12% it contributes to GDP (it accounts for 70% of total export value).

He is also concerned about mining companies’ sincerity; he argues that they use threats to extract concessions from the government — as, he says, Swiss-owned Glencore mines did in Zambia’s Copperbelt recently, when it threatened to retrench thousands of workers to reduce costs in the face of increased taxes.

"Mines should stop holding the government to ransom. It’s a pity that every time the government moves in to correct the wrong, the mines start retrenching employees," he says.

In recent years, Zambia has been on a charm offensive, promoting mineral exploration to attract new miners. But the new taxes could dampen exploration prospects too.

The Association of Zambian Mineral Exploration Companies says the chilling effect of the taxes on mining production will go against the government’s own policy of increasing mineral exploration and growth of the mining sector.

But Haabazoka has a word of warning for mining companies, "What the mines should understand is that there are other [mining] investors watching on the terraces. [There is also] the option of nationalising nonprofit-posting mines.

"We are alive to the fact that copper is the next gold."


This article was tagged in

MINING MINING TAX mining in zambia MINING ROYALTIES