Zambia’s taxation in copper mining is now the highest – First Quantum Mining and Operations Ltd.

By John Chola
07/10/2011
Zambia’s taxation is now the highest in the copper mining industry, Adam Little, Head of Tax, First Quantum Minerals has said.
Mr. Little said this in response to a question why there is no Windfall Tax in Zambia when the price of copper is so high.
Mr. Little reiterated that Zambia had set its taxes at the very high end of world taxation on the mining industry.
“Zambia does charge an effective Windfall Tax, but it’s called Variable Profit Tax. This increases the rate of tax on profits from 30% to 43.8%. Taken together with the Mineral Royalties charged and ZCCM-IH participation, these are the highest government takes from the copper industry anywhere in the world,” Mr. Little insisted.
He observed that rates were similar to, but higher than those recently imposed in Chile, which is the industry leader.
Mr. Little added that in terms of Zambia’s near neighbours, its taxes were very much higher.
“The Variable Profit Tax is effectively a Windfall Tax, and increases the tax rate charged on profits from 30% to 43.8%”, he said.
“It may be of interest to know that the so-called “Windfall Tax” of 2008 was in fact a Windfall Royalty i.e. it was applied on revenue or turnover and not profit – so high cost producers could actually be making a loss and yet be required to pay this Windfall Tax”, Mr. Little added.
The FQ Head of Tax said that it should also be remembered that from the investor’s point of view, dividend payments to ZCCM Investment Holdings are like a tax for the foreign investor.
“So the rates are increased beyond just the published tax rates”, Mr. Little said.
He observed that companies would invest in countries with the most attractive tax regimes as Zambia was part of a small world where competition was the order of the day.
Many Zambia’s neighbouring countries were reacting to high commodity prices and accompanying public pressure by suggesting increased State ownership and/or various forms of windfall taxes.
Meanwhile, economic Consultant Bob Sichinga reiterated his call (Saturday September 24, 2011) on the new Patriotic Front government to re-introduce the windfall tax.
Many commentators have for a long time alleged that Zambia was not following this route because the mining industries were paying the politicians.
“Zambia is not following it is leading! The Zambian Mining industry certainly isn’t paying the GRZ for the privilege of one of the highest mining tax regimes in the world,” stated Matt Pascall, Director of Operations, First Quantum Mining and Operations Ltd.
“It is very important to differentiate between a Tax and a Royalty – the latter doesn’t take into account whether the company is making a profit or not. If a company is making a loss over a long period it will go out of business – it is untenable that a company should be paying a Windfall Royalty at such high levels that it will become loss making and therefore have to close down – this was the case with the proposed 2008 Windfall Tax / Royalty,” added Mr Little.
And Mr Pascall said Zambia had recent history of State ownership through nationalisation, and has seen the very negative effect that had on the Zambian copper industry, and the Zambian economy as a whole.
He said FQ believed that Zambia was unlikely to follow State ownership again while that history was fresh and understood.
Responding to the question as to whether FQ should be paying more tax Mr. Pascall stated:”the current level of taxation in Zambia on the mining industry is amongst the highest around the world. FQM are paying substantial amounts of tax (as at our June payment, US$1.2 billion in total).”
He added, “One shouldn’t forget that mining companies also contribute significantly to the country’s tax take through PAYE and duties, which are all a cost of doing business.”
Meanwhile, responding to some economic commentators that had expressed displeasure on the existence of transfer pricing in the mining industry Mr. Pascall stated that this was important.
“The reason it raises suspicion is that it can be used so that a low price is set (in Zambia) and then a higher price is realised on the sale of mining products outside Zambia. Transfer pricing also applies to goods and services which are used in Zambia, but come from outside of Zambia from a person linked with the person doing business in Zambia. There has been a lot of public comment on the copper industry, and how the tax take in Zambia is too low,” Mr. Pascal said.
Transfer Pricing is the general term which describes the price that somebody sells their production from, for instance, Zambia, to another company or person who is linked to the producer across national borders.
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