Making Zambia a more attractive destination for investment is the number one shared priority of Zambia’s brightest financial brains. Investment in the country’s mining sector, in particular, has the enormous potential of putting Zambia back on a growth trajectory, with the direct economic benefits from new and expanded mining operations second only to the economic multiplier effects that can support and sustain generations of upwardly mobile Zambians, when the environment is right.

Experts agree: Harnessing the potential of this critical sector requires that Zambia urgently implement global best practices, without losing sight of what is best for the country. Do the 2022 Budget’s proposed changes to mining policy finally put us on track? The country’s leading financial brains weigh in.

Which key changes to the mining tax regime were announced in the 2022 Budget Speech?

Mr Michael Phiri, Tax Partner at KPMG Zambia: The long-awaited removal of mineral royalty non-deductibility was announced, and the Minister also expressed the intention to graduate the Mineral Royalty Tax (MRT) rates so that they increase incrementally, much like the way Pay As You Earn (PAYE) operates.” 

When will these changes be legislated?

Mr Phiri: “The measures announced in the Budget speech are due to take effect on 1 January 2022. The only downside is that the restructuring of MRT may only be passed into law at a later date [which is yet to be confirmed].”

What will be the impact of removing mineral royalty non-deductibility? 

Veston Malango, CEO of the Chamber of Mines of Namibia, explains“Each month, mining companies pay a percentage of their sales to Government as royalties, reducing the money left over to the business as profit. Therefore, it is standard practice to treat royalty payments as a deductible cost when determining a business’ profits. To not do so means that companies have to bring that figure back in to calculate their corporate tax – when they have already paid it to Government as a royalty – thereby taxing them twice on the same amount. Double taxation is a big problem to investors.”

When, in May 2020, Namibia reversed its decision to enact this provision, an immediate rush of investment into the country’s mining sector followed and, along with it, renewed confidence. The same provision of non-deductibility which was enacted in Zambia in 2019 was really the final straw, hastening the decline in new investment that we’ve since experienced, with the total reluctance by existing mines to invest in long-term expansion projects. 

The removal of this particular provision is a crucial first step in giving international investors the ‘green light’ that they’ve been waiting for and, once the changes to MRT structure come into play, among the first effects we may expect to see are expansions and new investments in FQM’s Sentinel operations and Lubambe Copper Mine.

Mr Godwin Beene, President of the Zambia Chamber of Mines, called the announcement that mineral royalty taxes will become a deductible expense “a clear indication to the world that Zambia is once again open for business.” 

“The announcement that mineral royalty taxes will become a deductible expense is a clear indication to the world that Zambia is once again open for business.”

How will restructuring MRT rates positively impact the economy? Won’t it simply mean that mines pay lower taxes?

Zambia’s MRT regime is structured around a series of tax bands, with the tax rate climbing to a new percentage point each time copper reaches a different price point. But, unlike the system applied for personal income tax, when the copper price crosses a threshold, the higher tax rate applies to 100% of earnings, rather than just to those above the relevant threshold. It’s equivalent to paying the highest possible tax rate on your entire monthly salary because you earned one or two dollars more than the income band in the tier directly beneath it. 

Prof. Saasa weighs in: “A fair restructuring of the way that mineral royalties are calculated will involve a sliding scale which operates in a similar way to PAYE. I think it’s important that Government recognises the need to incentivise production, rather than applying a higher tax rate to the full amount of revenue generated, which is very punitive when the copper price improves. This is not an argument that’s being made for the sake of mines maximising profits; it’s simply fair play, and good practice globally and will allow Zambia to compete with other countries.”

Will the proposed changes to the mining tax regime generate increased economic activity and, if so, will these benefits extend beyond the industry? 

Mr John Kasanga, economist: “Now that the UPND government has laid out its policies, which are really stimulants for growth, one should also expect increased economic activities. This will result in increased revenue generation as more money circulates in the economy, and the Government taps into increased incomes. For the mining sector, money will enter the economy through increased copper export earnings, as well as increased mine purchasing of goods and services. The fact that the Minister has engaged the mining industry is very exciting.”

Mr Sokwani Chilembo, CEO of the Zambia Chamber Of Mines: 

“A few years ago, the jury was out as to whether Zambia’s growth was really being driven by mining, when we were seeing growth in several other sectors. In the period intervening, it’s become very clear that mining is a bellwether for the entire economy and therefore, if mining is winning, the entire economy is winning. When the cost of capital for mining drops, the cost of capital drops overall. Almost fifty percent of the country’s middle income disposable expenditure is tied in some shape or form to the mining sector. The wide-ranging impact of this sector’s success mustn’t be discounted. Now, the sector can plan ahead, and execute on all those things we’ve wanted to develop, like mineral value addition. The promising changes to mining policy made in the Budget announcement will be positive for every area of the economy and, as such, should be seen as a win for every Zambian. 

This is an opportunity for a reset. We have even better exogenous metrics, a fantastic copper price, and continuously improving demand outlook – and we have assets in hand that we can recapitalise, which will move us to 1.5 million tonnes. If we find a way to deal with the business distress that mines on the old copperbelt are facing, then we also have a geological potential that stands us in very good stead to make up the difference over the next 15 years. Providing this stimulus to the mining industry is a practical, common sense decision on the part of the Minister.”

Mr Beene agrees: “With the right stabilising policies in place, these developments could completely change the country’s development trajectory.”

“The promising changes to mining policy made in the Budget announcement will be positive for every area of the economy and, as such, should be seen as a win for every Zambian.”

Sentinel Mine

How confident can we be that expansions and investments in new mines will generate substantial revenues? 

Mr Chilembo: “Let’s look back at 2013, when Mopani took the decision to mobilise $1.3 billion and make investments into the shafts that you see today on the old Copperbelt, in anticipation of this rise in copper price. It was forecasted that, come 2023, we would see a mismatch between demand and supply that would improve price and give us the scenario that we’re living today. The company saw this once-in-a-lifetime opportunity playing out as many as eight years ago. Making investment decisions on this basis today is only logical; nobody’s gambling.

Previously a decline in ore grade was one of the main drivers behind Mopani’s expansion [with new underground shafts built to reach higher grade copper ores, deep in the earth]. In the period after that, the soaring uptake of Electric Vehicle (EV) technology took centre stage in the need for Zambia to expand production capacity. Now, we’re seeing unprecedented demand for copper enhanced by the COVID-19 pandemic. During the first lockdowns, people in certain parts of the world saw the sky for the first time in many years! This added social and geopolitical factor is increasing the rate of uptake of EVs [and other copper-dependent green energy technology]. As soon as the UK set a time limit on the use of internal combustion engines, that demand profile steepened.

We must be pragmatic and forward-looking in responding to this rise in demand without delay. It is low risk and it is the right thing to do. We should have done it yesterday.”

Several of the measures announced by Hon. Mr. Situmbeko Musokotwane – in particular those that addressed economic growth and the need to curb overspending – were met with jubilation. But in recent years, Budget announcements have not always resulted in the desired outcomes. How much room is there for optimism that this year’s Budget will live up to expectations and deliver? 

Mr Simangolwa Shakalima, Deputy Chairperson of the Bankers Association of Zambia: “Indeed, in the past we’ve seen the right things said, but the exact opposite done. Now, the right pronouncements have been made, and we’re obviously all very keen to see them implemented. One factor that can offer us comfort now is transparency. Within the last couple of weeks, we’ve seen an emphasis on transparency, including transparency about the country’s debt, how much we owe, and to whom. Transparency is important because it allows the citizenry to hold those in office accountable.”

Mr Chilembo weighs in: “The circumstances that we’re in are extraordinary. Take the initiative to remove mineral royalty deductibility, for example. There was consensus at the Mining Indaba earlier this year that this was something that needed to happen – and not just consensus within industry, but consensus between members of Government, civil society, and industry. There was goal congruence, and everyone was aligned in that decision. So this is not a standalone decision being made by the Minister; this is backed by all stakeholders in this arena. There were additional changes that were being sought too, but we understand the tough circumstances that the new Government is in.

The difference is that, with the open door policy that’s available now, we can improve upon where we are, and that’s critical. When Government closes the proverbial door and stakeholders are not in the discussion and the parties are not goal-aligned, no one can get the outcome that they are seeking. As an industry, we’re very grateful for this open door policy. It had been six years since the mining industry had an audience with the Minister of Finance! Finally, everybody is pulling in the same direction.”

How do Zambians know whether mining houses are transparent and accurate in their financial reporting?

Mr Kasanga: “Mineral royalties are paid right here in Zambia, by law. Revenues that remain once taxes and royalties have been paid have to finance production; mines have to spend money to make money. It’s an incredibly capital intensive industry.”

Mr Chilembo: “Indeed, the law compels companies in all sectors to report their accounts correctly. To do so, one must report the revenue as it is received. As an industry, we report accurately and we account for all of our sales.

I’d like to address the folklore about so-called “underreporting” that is in circulation, too. There is an ongoing discussion about disparities between copper export numbers from 2013 through to 2019. Put simply: the figures do not account for copper ore acquired from the DRC and later exported. The very same documents in which these ‘big figure’ assertions are made do acknowledge the possibility that ores which were not produced in Zambia have been being tallied as such, but they do not explore this likelihood in detail.

We must not allow stale, unproven accusations to distract from what needs to be done, which this Budget pragmatically lays out. We have perfect hindsight, with regard to how things could have evolved from 2018 when, instead, an adverse regime eroded trust and led to a suspension of over $600 million of capital expenditure that should have percolated into the economy.”

For years, the PF Administration fuelled perceptions of distrust around ‘foreign’ miners. What can be done to undo the harm that this narrative has created, and what role can the mining sector and Government play?

Mr Shakalima: “I think there is a need for increased regulation in the mining sector, for the sake of better visibility. We probably need to get to a stage where ZRA sees production as it happens, and is not at the tail end.”

Mr Kasanga: “ZRA is well-equipped to respond to this issue because a model was put together in 2009 for a specialised multidisciplinary Mining Tax Unit that is able to assess all aspects of the mining production value chain, including cost structures for each mine. This unit was established to give ZRA clarity in how it assesses what each mine is doing. I don’t know what has happened over the years, but these issues shouldn’t still be there.

Regarding the issues around who controls the mines, we ought to focus on the contribution that copper earnings make to the rest of the economy. It’s not about who owns the mines, but what is happening when the mines are doing well.”

Prof. Saasa: “This narrative boils down to resource nationalism, and has its roots in a lack of understanding of the intricacies of business. One of the issues is that companies are accused of stealing but, ironically, when it comes to the mining sector’s contribution to the treasury, Government is congratulated. Beyond developing a better monitoring system, Government must be able to report production accurately and take responsibility for its shortcomings in this regard.”

Mr Chilembo: The integrated reporting framework that’s being utilised internationally across the corporate world provides the necessary granularity for looking at subsidiary investments in destinations such as Zambia, particularly since 80% of our industry has Government shareholdings. At that level, there’s every opportunity for all parties to get clarity on reporting, so we needn’t reinvent any wheels. The framework for transparent reporting is already there.


Find out more about the frameworks that are already in place to ensure transparency and accountability within Zambia’s mining sector, by looking out for our upcoming ‘Transparency & Accountability’ series on our website or social media platforms. Alternatively, send your address to to receive an email the minute the first instalment is published, or use the ‘transparency & accountability’ tag (below) to locate the series any time.

See also: Behind the Budget