For the third year in a row, the mining sector generated roughly US $1.5 billion in revenue in 2013, representing nearly 30% of total government income. Zambia is the world’s eighth largest copper producer, and gains most of its extractives revenues from the metal.
The EITI Reports show that copper production increased by over 8% from 2012 to 2013. Foreign investment helped push production levels up: in 2012 alone more than US $4 billion was invested in the mining sector.
Despite the hike in productivity, government revenue rose only slightly in 2013, partly because the average price for copper decreased.
In 2013, royalty payments represented 21% of government revenue from the sector, a bigger share than in the previous years. In addition to higher production, this was due to an increase in the royalty rate.
Corporate income tax payments, on the other hand, were lower in 2013. This was partly because lower copper prices hit mining companies’ profits in 2013. It is also possible that tax-deductible expenditure by mining companies cut corporate tax revenue.
Value added tax is temporary revenue
The largest revenue stream in 2013 was value added tax (VAT) from imported goods, which generated 27% of Zambia’s extractive revenue. However, as exporters, mining companies are refunded the VAT they pay. It can thus be expected that much of this revenue will be returned to the companies. Last year Zambian and international media covered a dispute between the government and companies over a US $600m rebate that the government was holding back because of missing certificates, which provide proof of the actual amount copper exported.
Debate over royalties
Tax refunds are not the only subject of dispute between the government and some companies. The government decided that this year the royalty rate would rise further from 6% to 20%. At the same time, corporate income tax for mining companies was removed. The aim is to simplify the tax regime but the hike, together with falling copper prices, has led some international companies to halt operations in Zambia.
Timely data is more relevant
EITI data provides facts for the discussion on how to tax mining in a way that guarantees a fair share for the government while enabling the companies’ operations. Zambia made a significant leap in improving the timeliness of EITI reporting by publishing both the 2012 and 2013 reports last December. With the recently published information, the Zambian public is better equipped to participate in the debates.
For more information about Zambia's EITI, see www.zambiaeiti.org or visit the country page on our EITI website.
Note to editors: we encourage the republishing of our content. Please attribute this article with: "Zambia: Balancing on a copper wire” was published on eiti.org on 20 January 2015.
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