Govt to follow legal channels

Govt to follow legal channels
By Kingsley Kaswende
Friday February 16, 2007 [02:00]

ENERGY minister Felix Mutati has said government will only follow legal channels to apply new mineral royalty tax changes to existing mining operations that have binding development agreements. And World Bank country manager to Zambia Dr Ohene Nyanin said it was wise for the government to begin to think of aligning the mining sector’s fiscal regime with international trends.

Speaking at a discussion forum on tax issues in the 2007 National Budget organised by PricewaterhouseCoopers (PwC) yesterday, Mutati said it would take a while before mining companies start implementing the suggested tax measures.

The government has proposed to increase the country’s mineral royalty tax on copper earnings from 0.6 per cent to three per cent, increase the company income tax from 25 to 30 per cent, and reintroduce a 15 per cent withholding tax on dividends, interest, royalties and other mining sector transactions. But the operating mining firms will not be affected by the new measure because of their binding development agreements, which spell out the low tax rates as incentives. The 0.6 per cent royalty tax, which is particularly low compared with taxes in other copper-producing countries, was put in place during an industry downturn early in the decade, when government was desperate to attract foreign investment in the mining sector.

Copper accounts for more than 60 per cent of the country’s exports. Copper prices have since risen from less than US$1 per pound to more than US$3 per pound, driven in large part by growing demand from China. Zambian copper production rose by 7.9 per cent in 2006, Magande said, from 459,324 metric tonnes to 492,016 metric tonnes.

Mutati said government would not act arbitrarily, but follow the law and negotiate with the mining firms. “But the fundamental issue is that you can’t have a situation where you have agreements that supersede the law. That is why we will negotiate,” he said.

Mutati said when the going was hard for the mining industry, it was prudent to reduce the tax in the sector. “If we did that at that time perhaps it is morally right that we also support each other when prices are high. This will also give an assurance that if there is turbulence in the near future we will also support them,” Mutati said.

Dr Nyanin was in agreement with Mutati’s sentiments, saying government’s policy of reducing tax in the mining industry during difficult times worked to attract investments in the industry when it was not popular. “But with the current situation of high prices it is just about time the government brought the fiscal regime in line with international benchmarks especially if it can do so in ways that raise revenue while keeping up with international trends,” he said. Dr Nyanin said the review in mineral royalty tax, company tax and the reintroduction of withholding tax were “all very good” and in line with international trends. However, Dr Nyanin advised that the two parties must negotiate to bring revenue gains to bear.