Mines Minister Wylbur Simuusa has told Reuters today that Zambia could cut back mineral tax royalties if commodity prices collapse next year. Mr Simuusa told Reuters on the sidelines of a London conference.
“For now (the royalties) will stay, but if it becomes a crisis, if prices crash, we might have to review the regime… not in 2012 but for 2013, in the next budget,”
Zambia plans to double royalties on copper miners to six percent in order to bring in badly needed revenue, increase social spending and farming subsidies – a move miners have warned may cause them to scale back operations.
The World Bank has said that the policy is unlikely to cripple the industry at current prices but could cause problems if copper prices fall.
Copper miner First Quantum, one of the largest investors in the Zambia’s mining sector, warned the viability of newer projects in the country, especially a newer generation with lower copper grades, could be at risk. It says its Kansanshi copper-gold mine is already among the most highly taxed in the world.
Adam Little, head of tax for First Quantum, indicated the miner hoped reforms to improve Zambia’s tax collection would result in lower royalties, which are based on revenue, not profit, and can be very punitive as prices fluctuate.
“We need to be thoughtful about the impact of revenue-based taxes. The recent 100 percent increase in mineral royalty taxes is damaging, especially for low-margin mines,” Little said.
“If other taxes can become more collectable, then Zambia’s reliance on the more damaging taxes can be reduced.”
Simuusa agreed their could be a re-calibration once Zambia has overhauled its tax and tax collection system.
Foreign mining companies operating in Zambia include Canada’s First Quantum Minerals, London-listed Vedanta Resources Plc, Glencore International Plc, Barrick Gold, Brazil’s Vale and Metorex of South Africa.