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ZAMBIA could simplify its fiscal regime for mining companies by scrapping corporate tax for the sector next year, a government source said on Friday, a move that comes against the background of a simmering dispute over value-added tax (VAT). Instead of corporate tax, regarded as hard to administer, companies would face a higher mineral royalty rate in Africa’s second-largest copper producer, the source said, without detailing the size of the rise.
The rate is currently six percent.

“This is under very serious consideration and may be announced by the finance minister,” said the source, who asked not to be named. Zambia’s 2015 national budget is set to be presented to parliament next week.

Like many producer countries, Zambia would like to see a bigger slice of mine revenue remain at home, and it has periodically been at loggerheads with mining companies, claiming in the past that it was owed hundreds of millions of dollars in unpaid taxes.

Now the industry says $600 million of VAT refunds are being withheld by the government under a previously unenforced 1997 rule, prompting threats to cut back investment.

Glencore, the mining group and commodity trader, has halted its zinc operations in the southern African country.
Its Mopani copper unit has suspended some of its planned $800 million investment in Zambian projects.

Konkola Copper Mines (KCM), owned by Vedanta Resources, said the issue of its VAT being withheld was hindering its investments and could have a “long-term negative impact”.
The roots of the VAT row lie in Zambia’s efforts to get to grips with the destination of its copper exports.

The regulation in question requires mining companies and other exporters to produce import certificates from destination countries to qualify for tax refunds.
This was aimed at determining whether or not Zambia was getting fair value and revenue for its mineral resources.

For example, a 2010 study by Christian Aid showed that as Zambia’s copper production soared in the 2000s, Switzerland came to account for more than half of the southern African country’s exports of the commodity. But the price of Swiss re-exports of the copper was far higher than that received in Zambia.

In 2008, the study estimated, Zambia’s GDP would have been 80 percent higher if the copper leaving its borders in that year alone had received the same price as Switzerland.

“The international trade data suggests that Zambia may be suffering losses in the billions of dollars by failing to receive the real value of its exports,” said Alex Cobham of the Centre for Global Development, a trade and aid think tank. — Mining Weekly/Reuters.