Barrick’s Lumwana copper
mine “’ one of Zambia’s
larger mines facing
the prospect of paying
three times as much
tax in the future.
Lusaka, Zambia — 19 December 2012 – Mining companies such as Glencore International plc and Vedanta Resources plc will pay three times more tax in Zambia than they did in 2010 once they finish expansion projects in the country, says, the Chamber of Mines.

“With a little bit of patience from the government and tax collectors, in the next couple of years there is going to be a very rapid ramping up of taxation,” said Chamber general manager Fredrick Bantubonse in an interview here. “I can see it quite easily reaching US$1.5 billion.”

Bloomberg News reports that, according to deputy finance minister Miles Sampa, Zambia plans to introduce stricter laws that will apply to companies including Barrick Gold Corporation and First Quantum Limited.

The country’s laws allow mining companies, which paid US$500 million in dues in 2010, to deduct capital investment from tax, curbing the government’s revenue from the industry, Bantubonse pointed out. The country is losing as much as US$2 billion annually because of corporate tax avoidance, according to Sampa.

“Even if you put the taxation at 40%, it would require a profit of US$5 billion to justify tax of US$2 billion, Bantubonse said. “You cannot make US$5 billion profit on US$6 billion of exports.” Sampa’s estimates are “unbelievable,” he said.

Zambia produced about 700,000 metric tons of copper in 2010, generating roughly US$6 billion in sales, Bantubonse confirmed.

About US$8.8 billion left Zambia in illicit financial flows between 2001 and 2010, Global Financial Integrity, a Washington- based research company, said, citing its own research.

Mopani Copper Mines has paid US$425.1 million in taxes and royalties to Zambia since Glencore bought 73.1% of the operation in 2000, the world’s largest commodity trader revealed earlier this year in a submission to a parliamentary committee in the U.K. In 2011, it paid US$104 million, and Mopani will have an effective tax rate of 52% in 2012, it added.

First Quantum paid US$224 million in Zambian taxes in June last year and US$80 million in 2010, according to its 2011 annual report. Its effective tax rate at the flagship Kansanshi mine is 43%, the Vancouver-based company said.

“There is no real benefit if you are going to avoid tax,” said Jeyakumar Janakaraj, CEO of Konkola Copper Mines, in which London-based Vedanta has a 79.4% stake. “It’s not a long-term strategy for anybody,” he said in a recent interview in Livingstone, near the Victoria Falls.

If the Zambian government believes mining companies are not paying the correct amount of tax, it should undertake an audit, Bantubonse suggested. The industry in November 2011 volunteered to co-operate in such an inquiry, he pointed out.

Source: Bloomberg News. For more information, click here.