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By Geoffrey Kapembwa

March 26 (Bloomberg) — Zambia‘s parliament approved an amendment to the Mines and Minerals Act that will increase taxes and abolish existing agreements between the government and mining companies, the Zambian Chamber of Mines said.

The bill, which will be signed into law by President Mwanawasa on April 1, will lift royalties on sales fivefold to 3 percent and increase corporate income tax to 30 percent from 25 percent. That will raise the effective tax rate on miners to 47 percent from 31 percent.

The government’s “unilateral decision to dishonor existing development agreements” is disappointing, Fred Bantubonse, general manager of the chamber, said in a telephone interview from the capital, Lusaka, late yesterday. “This is arm twisting.”

Zambia, Africa’s largest copper producer, expects to earn $450 million in additional revenue this year from higher mining taxes as it seeks to benefit from the metal’s seven-year rally, Kolombo Mwansa, the southern African country’s mines and mineral development minister said on March 4.

The law will result in miners reconsidering any expansion projects because of poor returns, Bantubonse said.

“Any bad law always affects future investment,” he said.

Copper accounts for about 70 percent of Zambia’s export income and production has been rising since the nation sold off state-owned mines 1999, almost three decades after they were nationalized. The proposed increase in taxes comes amid record profits earned by companies including Vedanta Resources Plc., India’s largest copper producer, and First Quantum Minerals Ltd., a Vancouver-based miner of copper in Africa.

— Editor: Athol Bolleurs, Dylan Griffiths.

To contact the reporter on this story: Geoffrey Kapembwa in Lusaka via the Johannesburg bureau at +27- abolleurs@bloomberg.net.

Last Updated: March 26, 2008 06:44 EDT

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