Zambia taxes investors' patience with changing royalty policy

Fri Feb 6, 2015 1:32pm EST
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* Mining companies unnerved by government's policy change

* Glencore, Vedanta, Barrick mines among the costliest

* DRC a potential winner of uncertainty in Zambia

By Silvia Antonioli

LONDON, Feb 6 (Reuters) - Plans by Zambia's new president to reverse a hike in mining royalties may come too late to revive investment in the sector, with confidence among foreign mining companies shaken and neighbouring Democratic Republic of Congo looking a potential better bet.

Eager to fill a hole in its finances, the government said last year it would scrap a corporate income tax of 30 percent while hiking mining royalties for companies operating in Africa's second-largest producer of the metal.

That policy, developed under populist former President Michael Sata, was inherited by newly-elected President Edgar Lungu of Sata's Patriotic Front Party.

Lungu pledged to fight poverty and maintain the late Sata's legacy but has since signaled an intention to scale back the royalties, which came into effect in January, after mining companies threatened to cut production and jobs in a sector that is the life blood of the country.

The government is also ready to negotiate another sticking point: the payment of $600 million in Value Added Tax (VAT) refunds, which the industry says it is withholding.   Continued...