Zambia Will Scrap Windfall Tax on Mining Companies

By Geoffrey Kapembwa

Jan. 30 (Bloomberg) -- Zambia, Africa’s biggest copper producer, will scrap a windfall tax on mining companies, Finance Minister Situmbeko Musokotwane said, following opposition to the duty from miners.

The levy will be abolished with effect from April 1, Musokotwane said in his annual budget speech today in the capital, Lusaka. A variable-rate profit tax will be kept.

The government will “remove the windfall tax and retain the variable-profit tax, which will still capture any windfall gains that may arise in the sector,” Musokotwane said.

Zambia introduced the two levies last year, raising the effective tax rate on miners to 47 percent from 31 percent. Copper prices last year dropped 54 percent on the London Metal Exchange, the most since at least 1987, as recessions in the U.S., Japan and Europe curbed demand for industrial metals. Copper accounts for about 70 percent of Zambia’s export income.

On June 10, former Finance Minister Ng’Andu Magande said the country was renegotiating the new code with some mining companies in order to boost mineral production.

Fiscal revenue from the mining industry in 2008 was 319.3 billion kwacha ($62.3 million), compared with a target of 917.3 billion kwacha, according to the Economic Intelligence Unit.

The windfall tax required miners to pay a levy on sales of copper when the price rose above $2.50 per pound. A charge of 25 percent applied to the surplus amount above $2.50 to a maximum of $3.00 per pound. The rate increased to 50 percent at between $3.00 and $3.50 and 75 percent above $3.50.

Economic Growth

A tax on profits of up to 15 percent was also imposed on companies that earned a return in excess of 8 percent on their investments.

Companies including First Quantum Minerals Ltd., Vedanta Resources Plc and Glencore International AG operate in Zambia.

Zambia’s economy expanded an estimated 5.8 percent last year, down from 6.3 percent the year before, while consumer inflation accelerated to 16.6 percent from 8.9 percent, driven by higher food costs, the budget showed. The government is targeting growth of 5 percent this year and inflation of 10 percent.

“Our export receipts are expected to be significantly lower than in previous years due to the fall in world copper prices,” Musokotwane said. “This will adversely affect our balance of payments. This problem is compounded by our continued dependence on a single major export commodity.”

The government expects to spend 15.3 billion kwacha ($297 million) this year, with 17.2 percent of that allocated toward education, 11.9 percent toward health and 9.9 percent toward transport.

To contact the reporter on this story: Geoffrey Kapembwa in Lusaka via Johannesburg at pmrichardson@bloomberg.net.