MAC: Mines and Communities

Zambia's government may re-introduce windfall tax on miners

Published by MAC on 2010-08-16
Source: Dow Jones (2010-07-29)

The Zambian government has, in recent times, resisted mounting calls by many of its citizens for a more equitable taxation of foreign mining companies. See previous MAC post from January 2010: Mining companies reject windfall tax

A  25% "windfall profits tax", introduced in 2008, was scrapped under pressure from the industry.

Now, however, a parliamentary committee has advised the government to re-instate it.

Zambia Parliament Panel Wants Mining Windfall Tax Reinstated

By Nicholas Bariyo

Dow Jones Newswires

29 July 2010

A Zambian parliamentary committee has recommended that the government reinstate the 25% windfall tax on mining companies to ensure that Zambians benefit more from the country's natural resources, according to the panel's report seen by Dow Jones Newswires Thursday.

The introduction of the mining tax regime in 2008 was based on a government-funded thorough study conducted by experts from the Ministry of Finance and National Planning and shouldn't have been "just scrapped", the report from the Parliamentary Committee on Estimates said.

"The removal of the windfall tax amounts to disregarding findings of the technocrats and a waste of time and resources," the committee report stated.

The tax regime introduced in 2008 imposed a 25% windfall tax on mining companies, raised corporation tax to 30% from 25% and increased royalties to 3% from 0.6%. However, the government was forced to abolish the windfall tax early in 2009 after the global copper prices dipped due to the economic downturn.

Maxwell Mwale, Zambia's Mines and Minerals Development Minister, said the windfall tax was scrapped to save the mining sector from collapsing and to safeguard jobs. Copper mining is the lifeblood of the Zambian economy and the country's largest single employer.

The committee of lawmakers was critical of the variable profit tax, which replaced the windfall tax. Most of the mining companies in Zambia are multinationals with various subsidiaries, giving them latitude to hide costs through transfer pricing and avoid paying taxes, the committee noted.

The panel added that the current tax regime didn't raise enough revenue to support development of infrastructure in mining areas and deal with the negative environmental consequences brought about by mining activities.

Mining companies operating in Zambia include London-listed Vedanta Resources PLC , First Quantum Minerals Ltd. and Swiss commodity trader Glencore International AG.

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