The Zambian Government will increase the royalties for open pit copper mines from 6% to 20% and to 8% for underground mines in January 2015, Finance Minister Alexander Chikwanda said in the 2015 Budget speech.
A revenue official said that the increased royalties will replace the 30% corporate income tax, which will be completely eliminated. The increased royalties come at a time when the Zambian Government and copper mining firms are in disputes over tax refunds.
The government is holding back $600m of VAT repayments on exports, seeking the copper mining companies to produce certificates from the importing countries. This action has forced major copper mining firms such as Glencore and First Quantum to halt or postpone multi-million dollar projects in the country.
Meanwhile, the government also plans to add a 30% corporate processing and smelting tax, with an aim to generating revenue from different stages of production.
Eurasia Group’s analyst Clare Allenson told Bloomberg: "The proposed changes to mining tax policies will likely further erode the relationship between miners and the government.
"The higher royalties will likely delay the development of new projects."