Picture: REUTERS
Picture: REUTERS

Zambia’s plan to increase mining royalties will break the back of the economy in Africa’s second-biggest copper producer and make investment there impossible, a lobby group said.

Responding to plans unveiled by finance minister Margaret Mwanakatwe last week to raise royalties by 1.5 percentage points and introduce additional charges for metal exports and imports, the Zambia Chamber of Mines (ZCM) said the measures would "lead to famine".

"Let us be clear, these higher tax rates will not result in more tax revenue," Nathan Chishimba, ZCM president, said on Wednesday in a statement.

"As industry production shrinks through the impact, there will be less jobs, less taxes … as a result there will be less in the government’s bank account for many years to come."

Members of the ZCM include Glencore, Barrick Gold and Vedanta Resources. First Quantum Minerals, which produces more than half of Zambia’s copper, is also in the chamber.

Mwanakatwe’s tax increases for copper producers come as the government tries to finance a gaping budget deficit amid rapidly rising external debt.

"As mineral resources are a depleting resource, it is vital to structure an effective fiscal regime for the mining sector to ensure that Zambians benefit from the mineral wealth our country is blessed with," Mwanakatwe said.

Mining taxes in Zambia have been a contentious issue for years, with frequent claims that the industry that accounts for more than 70% of foreign-exchange earnings does not contribute enough to the treasury. This is the 10th tax shift miners in Zambia have faced in 16 years, says the New York-based Natural Resource Governance Institute.

Bloomberg