Maravi

Govt to earn $415m from mining taxes

Govt to earn $415m from mining taxes
Written by Joan Chirwa and Nchima Nchito

FINANCE minister Ng’andu Magandehas said the government is likely to net the projected US $415 million (about K1.3 trillion) extra income from mining taxes as copper prices remain bullish on international markets.

Some mining companies recently made their initial payment of windfall taxes to the government, with Kansanshi Mines declaring a disbursement of US $30 million (approximately K101.2 billion), almost 10 per cent of the projected annual income from the mines this year.

“There is a formula that government came up with in calculating the windfall tax and looking at the current prices of the metal, the Ministry of Finance and National Planning is optimistic that the projected US $415 million in additional revenue from the mines will be collected at the end of the year,” Magande said in an interview. “I am very hopeful that we will get there because we are remaining with a few months before the end of the year.”

The government this year came up with a new tax regime in the national budget, with a projected US $415 million (approximately K1.3 trillion) in additional revenue to the treasury in 2008.

The estimates in terms of the expected additional revenue from new mining taxes is significantly higher compared to what the government has been collecting from the mines through taxes. In 2006, government collected slightly over K35 billion from mineral taxes when other copper rich countries like Chile gained around US $1.7 billion (approximately K6.3 trillion, half of Zambia's national budget) as tax contributions from its 17 largest privately held mines in just one quarter of 2006.

Last year, the government engaged a team of experts to renegotiate development agreements with the mines as part of the process of introducing a new tax regime announced that year, which entailed having royalty taxes pegged at 3 per cent as opposed to 0.6 per cent. It was however noted that even if mining companies were to move to the 2007 tax regime, the country would still not get a fair share from its mineral resources.
It is in this vein that it was decided to have a new fiscal and regulatory regime in the 2008 budget to bring about an equitable distribution of the mineral wealth between the government and the mining companies, a law that effectively took away the muscle of the Development Agreements that mining companies signed with the government at the time of privatizing the mines.

Effective April 1, 2008, mining companies have been paying corporate tax at 30 per cent; mineral royalty tax on base metals at three per cent of gross value; withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the sector at the rate of 15 per cent and a variable profit tax of up to 15 per cent on taxable income, which is above eight percent of the gross income.

A windfall tax was also introduced at different price levels for different base metals. For copper, the windfall tax will be 25 per cent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 per cent at a price for the next 50 cents increase in price and 75 per cent for a price above US $3.50 per pound.
Analysts have forecast continued demand for copper in the short term, a situation that is likely to further push commodity prices upwards from an average trading level of around US $7,900 per tonne. Others predicted that copper prices may reach US $10,000 per tonne in the short term. Higher prices of copper on the international market will lead to increased revenues to the government treasury through the newly implemented windfall taxes imposed on mining companies.

But sources at one of the country’s major mining companies said the windfall tax for the mines did not take into consideration the different operating costs incurred by different mining companies.

“Operating costs should have been taken into consideration when coming up with the windfall tax. It’s a very superficial way of trying to get money and we don’t know how sustainable it is in the long term,” said the sources.

But mines and minerals development minister Dr Kalombo Mwansa said the government expects the mines to obey the new laws as long as they remain in production.

“As long as mining companies continue producing, they will be obligated to pay the new taxes to the government,” said Dr Mwansa.

Labels: KANSANSHI MINING PLC, MAGANDE, MINING, WINDFALL TAX

posted by MrK @ 12:13 AM