Zambia could simplify its monetary policy amid a dispute with mining companies over VAT, which the country is looking to scrap for the sector next year.
Mining firms would face a higher mineral royalty rate in Zambia instead of corporate tax, regarded as hard to administer, if the fiscal restructuring and VAT requirements of the country is approved, according to reports.
VAT refunds owed
Africa’s second-largest copper producer is withholding a $600 million in VAT refunds owed to mining firms and will only repay the cash when companies produce import certificates from destination countries, minister of mines said in June.
The African nation, which last year lost its position as Africa’s top copper miner to Congo for the first time since 1998, began enforcing the rule last year in order to curb tax avoidance.
In August finance minister Alexander Chikwanda announced the government had decided to relax the rule because it proved very hard to implement, mainly because it involved documentation from importers outside the country’s jurisdiction.
Glencore suspends operations
World’s third-largest miner by market value Glencore suspended its zinc unit in Zambia stating that the Zambia government continues to withhold at least $200 million in tax refunds owed to the firm.
The company announced on Friday that 169 jobs at the mine will go as a consequence of the measure. It also said the mine was curbing ‘all expansion capital projects’.
Like many producer countries, Zambia would like to see a bigger slice of mine revenue remain at home, and it has periodically been at loggerheads with mining companies, claiming in the past that it was owed hundreds of millions of dollars in unpaid taxes.
Konkola Copper Mines (KCM) owned by Vedanta Resources said the issue of its VAT being withheld was hindering its investments and could have a ‘long-term negative impact’.
The roots of the VAT row lie in Zambia’s efforts to get to grips with the destination of its copper exports.
The regulation in question requires mining companies and other exporters to produce import certificates from destination countries to qualify for tax refunds.
This was aimed at determining whether or not Zambia was getting fair value and revenue for its mineral resources.