Lusaka, Zambia — MININGREVIEW.COM —02 February 2009 – The government of Zambia – Africa’s biggest copper producer – has announced that it will scrap its windfall tax on mining companies, following their ongoing strong opposition to the duty.
Bloomberg News reports that Finance Minister Situmbeko Musokotwane said the levy would be abolished with effect from 1 April, but that the variable-rate profit tax would continue. As he put it, “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.”
Zambia introduced the two levies last year, raising the effective tax rate on miners to 47% from 31%. Copper prices last year dropped 54 p% on the London Metal Exchange – the most since 1987 – as recessions in the United States, Japan and Europe curbed demand for industrial metals. Copper accounts for about 70% of Zambia’s export income.
Fiscal revenue from the Zambian mining industry in 2008 was US$62.3 million (R623 million), according to the country’s Economic Intelligence Unit.
The windfall tax required miners to pay a levy on sales of copper when the price rose above US$2.50 per pound. A charge of 25% applied to the surplus amount above US$2.50 to a maximum of US$3.00 per pound. The rate increased to 50% at between US$3.00 and US$3.50, and to 75% above US$3.50. A tax on profits of up to 15% was also imposed on companies that earned a return in excess of 8% of their investments.
Foreign companies – including such giants as Canadian-based First Quantum Minerals Limited, London-headquartered Vedanta Resources Plc and Swiss-based Glencore International AG – operate in Zambia.