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‘Higher royalties to reduce revenue’

ZAMBIA’S plan to replace corporate income tax for mining companies with higher royalties is likely to reduce Government revenue and result in job losses, World Bank country director Kundhavi Kadiresan has said.
Ms Kadiresan said the proposed changes, which will take effect January 1, 2015, if parliament approves, are likely to result in a fall in copper output.
According to Bloomberg, producers may start favouring areas with higher-grade ores or shut down operations.
“This may not be the smart thing to do, we would have liked the royalty rates they had before, along with the income tax rates they had before. It was a good combination,” she said.
The measures, announced by Finance Minister Alexander Chikwanda in October, are meant to increase Government’s share of income from mining and curb tax avoidance, which the government claims costs the nation as much as US$2 billion a year.
Under the new system, mining royalties will increase to 20 percent for open-pit operations and 8 percent for underground mines from the current 6 percent levy.
Vedanta Resources Plc, Glencore Plc and Barrick Gold Corporation are among companies that operate in Zambia, which last year dropped to second place as the continent’s biggest copper producer after Democratic Republic of Congo.
Barrick said last month the new tax system would threaten the viability of its Lumwana copper mine, which may prompt it to suspend operations.
Kadiresan said Government should rather focus on building capacity to monitor tax compliance and collection.
“I hope Government also starts thinking about it seriously because it has implications in terms of jobs and government’s own revenues,” Ms Kadiresan said.