Zambia To See Mining Tax Windfall

November 26, 2010 Taxation in Zambia

a little friction (12231)The Zambian Government has come to an agreement with locally operating mining companies, resulting in greater future tax certainty for the mining industry, and a ZMK 1.426 trillion payment of taxes in arrears for the Government.

Discussions between the Zambian Government and mining companies operating in the country have come to a fruitful conclusion, with mineral extraction operators agreeing to pay tax authorities ZMK 1.426 trillion in owing taxes. The payback amount is approximately ZMK 413 billion greater than previously expected by the Government. This announcement was made by the Finance and National Planning Minister of Zambia Situmbeko Musokotwane while speaking to parliament on November 25th.

The now-settled disagreement between the Zambian Government and nationally operating mining companies has a history stretching back to 2008, when the tax rates associated with the mining sector were raised, resulting in wide-spread non-payment of tax obligations. Despite agreeing not to alter the tax treatment of mineral extraction companies, in 2008 the Government introduced a 25 percent windfall tax on mining operations, and raised the mineral royalties rate to 3 percent. Additionally, the national corporate income tax rate was increased from 25 percent to 30 percent. The changes led to mining companies not paying a portion of their taxes. Representatives of the Zambian Government and the mining industry were in discussion over the issue since January 2010.

According to Situmbeko Musokotwane, all mine operators which participated in the discussions, have now agreed to abide by the current tax regime and pay the taxes in arrears. The Finance Minister stated that the Government would be obliged to keep the current tax rates for mining industry for at least another ten years, in an effort to provide greater economic stability. He also revealed that the mining windfall tax rate would be re-assessed to ensure that it is set an appropriate level.

Photo by ehoyer