Zambia:Tax Overhaul Impresses Mines

By Alice Chisanga [caption id="attachment_90325" align="alignnone" width="1018"] Minister of Finance and National Planning Dr Situmbeko Musokotwane[/caption] The decision by Government to rationalise the mining tax regime to attract investment and boost production has been welcomed by mine owners in Zambia. The 2022 Budget - under the theme ‘Growth, Jobs and Taking Development Closer to the People’ - presented to Parliament yesterday by Minister of Finance and National Planning Dr Situmbeko Musokotwane unveiled a key revision to the  Zambia mining tax regime such as the return to the approach followed by other global mining jurisdictions which enables companies to deduct mineral royalty tax payments against corporate income tax. First Quantum Minerals Zambia Government Relations Godwin Beene says the non-deductibility, imposed since 2019 led to ‘double-taxation’ and has stymied the company’s  expansion plans in the Country. Dr. Beene said the mining sector remains critical to the Zambian economy as it is the main contributor to foreign exchange earnings. He notes that this role is destined to grow in importance due to the rising demand for copper boosted by its vital role in a number of rapidly growing industrial sectors such as manufacturing of electric vehicles. "The buzzword is that copper will be as lucrative as oil was in the mid-1970s,” he said. "To benefit from the expected copper boom, Zambia must not depend just on the high prices.  Rather, if the New Dawn Administration is to achieve an increase in copper output from the current 800,000 to its stated ambitious target of over three million metric tonnes per year within a decade, existing mines must produce more while new mines must be built." He adds. Dr Beene is with the view that the ambition by Government to triple copper mining production to three million tonnes needs more work on mining tax reform and stability to maximise investment opportunities. "The mining industry stands ready to work collaboratively with the Government in this endeavour." Says Dr. Beene. He further welcomes Dr Musokotwane’s acknowledgement that tax income from the mining sector has contributed significantly to government’s revenue and foreign exchange earnings in 2021, mainly due to an increase in the global copper price. He says the 2022 Budget has bolstered the confidence that the new government is on the right track. Describing the budget as a strong, bold budget that embraces the urgent needs of the people of Zambia – particularly in terms of education and health – while balancing the long-term needs of industry to ensure the economy strengthens and is sustainable for the benefit of all. “This Budget puts Zambia back on the global stage as a respected and competitive player in the mining sector." He says. "New and existing business will now need to be reassured of the security of long-term investments through further reform of the sliding scale of mineral royalties, VAT Refund discipline and assurances of stability, that will result in increased investment, more jobs and more taxes through increased production; backing our ethos that what’s good for First Quantum is good for Zambia.” He adds. First Quantum paid more than US$850 million in taxes, royalties, duties, and fees to the Zambian government, along with community and infrastructure expenditure in 2020. Despite the additional challenges faced in 2020, FQM achieved its highest-ever annual copper production, which was reflected in the increased amount of its contributions to Zambia’s public finances. The report shows that FQM paid approximately US$209.5 million in mineral royalties ($195.8m, 2019), and a further $202.8 million in company income tax in Zambia during 2020  and $176.2m the year before.