Government’s tax change proposals as contained in the 2019 national budget will dampen prospects of attracting much-needed investment in mineral exploration, says the Association of Zambian Mineral Exploration Companies (AZMEC).
Reacting to the 2019 budget, which, among others, proposed to increase mineral royalty rates by 1.5 percentage points at all levels of the sliding scale and introduce a fourth tier rate at 10 per cent on the sliding scale mineral royalty regime, which would apply when copper prices rise beyond US $7,500 per metric tonne, AZMEC president Geoffrey Mulenga stated that the tax changes will negatively affect investment into mineral exploration.
“Measures being proposed in the 2019 national budget are expected to have negative consequences for the mineral exploration sector and hence run contrary to stated government policy of increased mineral exploration and growth of the mining sector,” Mulenga stated in a press release issued, Tuesday.
He added that mineral exploration is an inherently high-cost activity, and that no new viable copper discoveries had been made over the past 10 years.
“Since Zambia’s Independence, only two discoveries have been made. Dramatically increased exploration activities are now required, more than ever, if Zambia is to remain a leading copper producing nation,” Mulenga added.
He stated that AZMEC had recently engaged with the Ministry of Finance to address issues of royalties and sales tax, among others, in the 2019 budget, which AZMEC felt to be contrary to the long term health of the industry and nation as a whole.
Mulenga also urged dialogue between stakeholders to address the concerns.
A comparative analysis of how investment in mineral exploration has helped boost copper mining in the Democratic Republic of Congo (DRC) also illustrate why Zambia’s copper mining production was eventually eclipsed by the DRC.
“Exploration expenditure in the DRC has recently been estimated at over 10 times that of Zambia. This exploration vitality has translated into increased production, employment and tax revenue on the Congolese Copperbelt where copper production has increased from 343,000 tonnes in 2010 to just over one million tonnes in 2014. In contrast, Zambian copper production has stagnated at 700-800,000 tonnes since the late 2000s,” read the statement.
“Unless new deposits are discovered and developed, the mining industry in Zambia will continue to stagnate and, ultimately, contract with negative consequences for the nation as tax collection, employment, suppliers and export revenue all contract.”
Earlier this month, Zambia Chamber of Mines president Nathan Chishimba cautioned that the proposed tax changes by government will put the country on a precipice of a deadly spiral that will damage the country, hurt the mining sector and make the country “un-investable.”
Chishimba warned that a number of mining operations will be pushed into loss-making positions, a move he added would have serious consequences for the industry.
Citing the introduction of an import duty on concentrates, combined with Sales Tax, the Chamber fears the move would render imports uneconomic, and partially shut down the Copperbelt’s smelters and refineries.