Zambia mining royalty concerns continue, despite offer to defer payment

Zambia commerce minister Margaret Mwanakatwe said last week that companies can defer payment of mining royalties until they have sufficient cash flow, Reuters news agency reported.

Zambia's government increased mining royalties to 20% last year, while removing a corporate income tax of 30% that raised little in the way of revenues.

"If your company is unable to pay the tax [royalty] for any reason, we are ready, willing and able to defer your liability. We won't put away the liability, but we are happy to defer until ... your cash flows allow you to pay," Mwanakatwe said at a mining conference, according to Reuters.

Mwanakatwe said that Zambia, Africa's second largest producer of copper, needs to benefit from its resource wealth, and that the corporate tax had been failing to raise money. The new tax meant that those who were previously paying nothing were now paying something, she said, according to Reuters.  

However, mining companies continue to push for the rate to be reduced, rather than deferred, saying that the 20% tax makes their mines uneconomic.

Copper-mining company Vedanta said last week that its mines will be 'worthless' if the country does not cut the tax, and it will have to review its operations in the country, the Financial Times reported.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that low commodity prices are already causing problems for the companies operating in the area. There are also disputes over the repayment of significant VAT refunds, where negotiations are still on-going, she said.

"“Zambia’s move to a direct royalty on mineral extraction rather than a corporate income tax should lead to a simpler, more easily enforceable, tax regime. However, if the royalty rate is set too high so that companies withdraw their investment, tax revenues and wider economic benefits will fail to materialise," Self said.

Earlier this month Zambia's president Edgar Lungu said that he had directed the Zambia revenue authority commissioner general, Berlin Msiska, to begin dialogue with mine owners to "resolve the impasse".

The president said he wanted an amicable settlement, with a "win-win outcome for both the mining companies and the people of Zambia".

Zambia's Chamber of Mines said in January that copper-production in the country was already making a loss following a decline in the international copper price. The new tax regime is "an excessive tax burden" that "will inevitably lead to mine closures in the short and medium term. This will in turn lead to lost revenue for the country."