Friday, January 30, 2009

Zambia Scraps Copper Windfall Tax

Zambia, Africa’s biggest copper producer, is to scrap a windfall tax on mining companies from 1 April following opposition to the duty from miners.

The move was announced by Finance Minister Situmbeko Musokotwane in his annual budget speech today. A variable-profit tax will be retained which will still capture any windfall gains that may arise in the sector.

Copper accounts for about 70 percent of Zambia’s export income. The country introduced the windfall and variable-profit taxes last year, raising the effective tax rate on miners to 47 percent from 31 percent. On June 10, former Finance Minister Ng’Andu Magande said the country was renegotiating the new code with some mining companies in order to boost mineral production.

Copper prices last year dropped 54 percent last year on the London Metal Exchange - the biggest drop in over 20 years - as recessions in the U.S., Japan and Germany curbed demand for industrial metals.

Revenue collection from the mining industry in 2008 was 319.3 billion kwacha ($62.3 million), compared with a target of 917.3 billion kwacha, according to the Economic Intelligence Unit.

The windfall tax required miners to pay a levy on sales of copper when the price rose above $2.50 per pound. A charge of 25 percent applied to the surplus amount above $2.50 to a maximum of $3.00 per pound, while the rate increased to 50 percent at between $3.00 and $3.50 and 75 percent above $3.50.

In addition, a tax on profits of up to 15 percent was imposed on companies that earned a return in excess of 8 percent on their investments.

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