Zambia buckles on Mining Royalty Tax – cabinet approves changes

Mineral royalty taxes are being changed again in Zambia, in order to avoid the loss of investors due to the recent massive increase in taxes.

During the Apartheid years, it eventually became apparent that to the most pedantic of political rulers that no country can operate indefinitely in isolation. Since then, as globalisation swept the world, economies have become even more closely interconnected. Zambian politicians are discovering this to their cost. Having misread the cyclical nature of commodity prices – and the reality of global competition for capital – they have now been forced to into backtracking after announcing a huge increase in mining royalty taxes. While the recanting will doubtless be welcomed by rational beings and is sure to save some jobs, the fact that Zambian politicians were prepared to alter such an important long-term agreement won’t be soon forgotten in mining circles. – Alec Hogg        

From Agence France-Presse

Zambia on Monday bowed to pressure from mining companies to review a punishing hike in mineral royalties that led investors to threaten to pull out of the copper-rich country.

“Cabinet has today approved changes to the mineral royalty tax regime and President Edgar Lungu has directed ministers to bring to cabinet next Monday details to be presented to parliament for approval,” presidency spokesman Amos Chanda said in a statement.

The statement did not specify how much the revised levy would be.

Mining companies had been up in arms over the more-than-threefold increase in the royalty, from six percent to 20 per cent, which took effect in January.

The government’s about-turn followed “extensive consultations with the mining industry” and took account of the sharp fall in copper prices and output, Chanda said.

Copper prices have slumped in recent months over concerns of an economic slowdown in China, the biggest consumer of the metal.

Zambia is the world’s eighth-largest copper producer.

The government had initially forecast copper prices remaining above $6,780 (6,392 euros) a tonne through 2015 and domestic production reaching 959,696 tonnes.

It has since revised the budget to reflect copper at $5,665 a ton, and total output coming to 839,000 tonnes.

The royalty hike caused a furore when it was announced last year.

Canadian mining giant Barrick Gold announced it would suspend operations and lay off workers at its Lumwana copper mine over the levy.

The country’s Chamber of Mines has warned it could cost the country $7 billion in lost output over the next five years — nearly a third of its GDP.

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