Zambian President Edgar Lungu on Wednesday directed the finance and mining ministers to change royalties on mining firms by April 8, saying the copper-producer could consider temporarily reverting to the tax regime in 2014.
The decision to increase royalties in January for open pit mines to 20% from 6% and those for underground mines to 8% from 6% has rattled unions and miners in Africa’s second-largest copper producer.
In letters to the two ministers, Lungu said that after receiving submissions from individual mining companies and the Chamber of Mines, he had noted that the new tax regime posed a challenge to some mining houses.
“Obviously the mining industry has been affected by copper prices on the international market. It is clear that this unfavourable economic trend globally has been mainly on account of weak global demand for copper,” he said in a statement issued by his spokesman, Amos Chanda.
Lungu asked the ministers to consider negotiating interim fiscal arrangements for operations that were most affected on a case-by-case basis or identifying potential legal or regulatory modifications to the existing 2015 fiscal regime that could be readily passed and implemented.
He said the two minister may also consider deferring implementation of the 2015 fiscal regime and temporarily reinstate the 2014 fiscal regime as a more amicable regime is negotiated.
“Dialogue between my government and the mines shall continue,” he said.
The Zambian government has been at loggerheads with mining companies, including Glencore and Vedanta Resources , over the higher royalties and Value Added Tax (VAT) refunds, putting investment in peril at a time when copper is around 4-1/2 year lows and economic growth is faltering.
Zambia’s kwacha currency has fallen about 20% since the start of the year, partly hit by the royalties and tax rows as well as lower copper prices and weak demand from China.