Zambia proposes friendlier mining tax regime after protests

Zambia on Monday slashed royalties on open cast mines, rowing back on proposed changes to its fiscal regime that the industry had warned threatened thousands of jobs in Africa's second biggest copper producer.

In January, the populist Patriotic Front-led government eliminated corporate tax on mining and raised royalties to 20 per cent in opencast mines and 8 per cent in underground operations.

Barrick Gold had threatened to mothball its Lumwana mine - which employs 4,000 people - as a result of the tax changes. Other companies operating in Zambia include First Quantum, Glencore and Vedanta

The Zambian cabinet said in a statement on Monday that the royalty tax rate for open cast mining would be cut from 20 per cent to 9 per cent, while corporate income tax on mining operations would be reintroduced at 30 per cent.

The move was welcomed by the Chamber of Mines, which had warned that the radical changes to the fiscal system introduced in January risked up to 12,000 jobs.

The PF, which has accused mining companies of using tax evasion measures to avoid paying their dues, had argued the changes were needed to ensure the southern African nation received its fair share of the mineral wealth.

But it faced mounting pressure from trade unions and the industry, while the economy has struggled as copper prices plummeted, with the government battling to contain a wide budget deficit, and the kwacha currency hitting record lows against the dollar.

"We welcome the changes. It takes us back to the two-tier system we were hoping for," says Jackson Sikamo, president of the Chamber of Mines and general manager of the Metorex, a Chinese-owned mine. "All the mining companies are now going to look at the financial details and see the impact of these new numbers."

Mining employs 90,000 people in Zambia and contributes about three-quarters of the country's foreign exchange earnings and up to 30 per cent of government revenue.

The new tax measures will take effect from July 1.

"Cabinet has stressed that the approved mining taxation regime will bring about the desired stability, predictability, consistency and transparency in the mining sector," the government said in a statement.

The government opened discussions with the industry after Edgar Lungu won a presidential by-election in January.

The vote was called after last year's death of Michael Sata, a veteran populist, who led the PF to power in 2011 on promises of more equitably sharing the country resource wealth.

Mr Lungu, a PF leader, pledge to continue with Mr Sata's populist policies on taking office - but also said he would review the mining taxes.

In spite of Zambia's vast copper resources, it is estimated that 60 per cent of the country's 14m population live in poverty.

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