May 2, 2007

Zambia to raise taxes for foreign mining firms

Zambia plans to raise mineral royalties and corporate taxes in June after renegotiating agreements with foreign mining companies in the southern African country, its finance minister has announced. Ng'andu Magande said that government had informed foreign copper and cobalt mining companies it intended to raise mineral royalty tax to three percent from 0.6 percent and corporate tax to 30 percent from 25 percent. Magande stressed that foreign firms which purchased copper mines starting from 2000 had been awarded tax breaks to enable them to stabilise their operations at a time of low prices. "The tax breaks were only for the stability period and now they should all start paying the same taxes. The new mines are already paying 30 percent corporate tax and three (percent) mineral royalty tax," he said.
Magande stated the government would renegotiate with 10 foreign mining firms that had received tax incentives so that they could contribute more funds to the Treasury. "We will ask them to furnish us with their financial statements if they don't agree, because other (foreign firms) are already paying the new taxes," he said.
Foreign mining firms operating in Zambia include London-listed Vedanta Resources Plc, Canada's First Quantum Minerals and Swiss firm Glencore International AG.
According to media reports some foreign mining firms were using the development agreements as a basis for avoiding taxes in Zambia. According to Magande some agreements disadvantaged the government as they had clauses which exempted foreign firms from paying higher taxes but would enable them to benefit from tax cuts. "These are the issues we are saying we should renegotiate." He stressed that copper production was likely to reach 550.000-600.000 tonnes in 2007 and 900.000 tonnes to one million tonnes annually by 2010. Investment and the opening of new mines have fuelled output. A planned $762 million mine operated by Australia's Equinox Minerals Resources is expected to play a substantial role in boosting output.
Tax rise proposals have been a controversial issue since last year's elections, when opposition leader Michael Sata accused foreign firms of exploiting low taxes despite higher global metals prices. The government lost key parliamentary seats in the Copper Belt region after Patriotic Front (PF) leader Sata promised miners he would to raise mineral royalty and corporate taxes if elected. (Rts)

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