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Alba Iulia
Sunday, January 19, 2020

Change in Mineral Royalty Tax is not a risk to Zambia’s sovereign sustainability

Economy Change in Mineral Royalty Tax is not a risk to Zambia’s sovereign...

Mopani Mines
Mopani Mines

The Zambia Chamber of Mines dispel assertions in the Post newspapers of Monday, April 25,2016 by Moody’s, lead Sovereign analyst for Zambia, Zuzana Brixiova that the proposed changes to the Mineral Royalty Tax(MRT) in the Mines and Minerals Development amendment Bill, before the Zambian Parliament, are a risk to sovereign sustainability.

Following the announcement of changes to the mining fiscal regime in the 2015 national budget, the Chamber of Mines and its membership have been engaging government and other relevant stakeholders through a constructive dialogue process.

It must be noted that the disastrous consequences of the MRT regime as it stood, would have resulted in virtual death of the mining sector, something which would certainly have not boded well for the country. The industry together with government was looking for a long-term solution that would take the industry through the next 20 to 30 years.

Increased production is fundamental to increasing government revenue.

It must be realized that having high nominal tax rate does not necessarily result in positive revenue. A realistic revaluation of tax rates that sustains the taxed sector is more progressive than an unsustainably high rate one that ultimately only serves to destroy the target sector.

What is an ideal mineral tax regime? It is one that delivers the maximum benefit for a country’s citizens from its mineral resources. Maximum benefit to the citizenry might not necessarily be the same as maximum benefit to the Government, in terms of tax receipts.

For example, a healthy mining industry has significant multiplier effects within the wider economy that far outweigh its contribution to the national coffers.

Studies by the International Mining and Minerals Council (ICMM) have shown that for every $1 generated by mining, at least an additional $3 are generated elsewhere in the host economy. In addition, for every one direct mining employee, employment is generated for further 3-5 employees elsewhere in the economy.

The broad aims of Government minerals taxation policy must therefore be to generate immediate and lasting revenue in a manner which:

• Has no adverse impact on the health of the Industry.
• Encourages (or, at least does not discourage) the investment needed for future development, which is the pipeline of future tax receipts.

Royalties are a blunt instrument; they are not sensitive to the distinctive circumstances of each mine. As MRT is based on production, it has no regard for costs – which will always vary between different mines. So, two mines with completely different cost structures and profit levels might end up paying the same royalty tax.

In fact, a mine can be making a loss and still have to pay the royalty – that is precisely what is happening across the Industry at the moment. Some loss making mines might even have to borrow money in order to make the payments.
A country report (No. 15/153, June 2015) by the International Monetary Fund (IMF) suggests Zambia’s MRT rates are too high.

“A comparison of prevailing royalty rates in 2014 shows that, at 6%, Zambia’s royalty rate was among the highest fixed rate among copper-producing countries.

A World Bank report (Making Mining Work for Zambia, June 2015), also suggests the country’s MRT levels are too high. “Zambia’s mineral royalty rates have in recent years tended to exceed the global norm, even before the rate jumped temporarily to 20 percent on open-pit mines in 2015. Most major mineral producers charge less than six Percent.”
According to the table below based on trends in Taxation by KPMG Global Mining Institute

Comparison with other national mining taxation regimes

Brazil 2 per % 25%
China 0.5%-4 % 25%
Ghana 5% 25%
Indonesia 4% 25%
South Africa 0.5%-7% 28%
DRC 2% 30%
Zambia 30% 6%-9%

We in the mining industry have been restructuring our operations, lowering our costs and contemplating investments which improve our efficiency and try to keep people in work. But what are the right measures when we’re dealing at the level of an entire country.

This basic truth is tremendously encouraging for us in Zambia, for it tells us that despite the serious situation we currently find ourselves in, there is a way out. This explains why we, as an industry, are calling for a national strategic consensus among all stakeholders to promote the growth not just of the mining industry, but of the economy in general.

The long-term objective is a diversified high-growth economy in which the mining industry is no longer the sole contributor, but simply one of many industries selling products and services, creating jobs, and generating wealth for Zambia’s people and tax revenue for Government services.

Recent public pronouncements by His Excellency, President Edgar Lungu on the absolute necessity for a growing, diversified economy are encouraging, and show the government is alive to the need for such a transformation. As an industry, we stand ready to work with government, and all other stakeholders, to help make this a reality.

Issued by: Talent Ng’andwe
Communications Manager
Zambia Chamber of Mines

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  1. Sad to say but the comments by ZCM are self – evident. Instead PF has trashed the mining industry through 5 years of criminal negligence and show-off taxation that has closed mines and caused thousands to lose jobs. This is not global. It is stoopidity of the most extreme of the PF govt. They cannot brag about realising the obvious after 5 years of flip-flopping. By the way, what has happened to the $600m that PF looted from the mines through unrefunded VAT?

  2. the government through IDC should develop its own mine as benchmark in the mining policy development. otherwise Zambia risks unsustainable policies which will be fluctuating and depended on street sensations with no merit.

    it is not an over statement that the Government has recently been changing the mining fiscal regime – at random on the basis of comments from some foreign NGOs.

  3. ZCM is an organization that just serves the interests of mining investors. They don’t care about this nation as long as they are getting their money. 100 years from now what transformation will have come from our mines. Copper prices are rising on the international Market what is ZCM saying about the prices. What will Zambia benefit from these high prices of copper. ZCM should be in the fore front proposing a windfall tax of say whenever the price of copper goes above US$5,000, the amounts above attracts a 75% tax because at US$5,000 these mines makes normal profits. Windfall tax will help pay back our debts or continue infrastructure development without borrowing.

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