Zambia Revenue Authority

2015 MINING TAX REGIME - ZAMBIA

PETER PHIRI DIRECTOR – LARGE TAXPAYER OFFICE

Overview of Presentation

Outline of Presentation

• Over view of 2014 mining tax regime

• An overview of the 2015 mining tax regime (January to June);

• Outline of some of the advantages and challenges of 2015 the regime;

• Expected new tax changes (effective July 2015) • Capacity Building Initiatives

Mining Regime – Prior to 2015

• Mining Operations – businesses carrying on mining or both mining and mineral processing.

• Exclusive mineral processing taxed as manufacturing income. (outside mining regime, CIT at 35%)

Mining Regime – Prior to 2015

• Corporate income tax based on a variable tax rate (Y = 30%+[a-(ab/c)]).

• 10-year tax loss carry forward period. • Ring – fencing of expenditure for none

“existing mines” . • Capital expenditure deduction at 25%

Mining Regime – Prior to 2015

• Hedging income treated as arising from a separate source

• Mineral royalty treated as a deductible expense for Income Tax purposes

• Mineral Royalty charged at 6% rate • Mineral Royalty “tax” base – Norm or

Gross Value depending on mineral

2015 Mining Tax Regime – January to June 2015

• Corporate Income Tax Rate at zero per cent except for industrial minerals

• Income from mineral processing taxed at 30%. 20% on Open cast operations 8% on under ground operations

2015 Mining Tax Regime – January to June 2015

• “Mining operations” re-defined – income from third party purchases and tolling excluded & taxed as income from mineral processing.

• Introduction of a definition for “mineral processing”.

2015 Mining Tax Regime – January to June 2015

Corporate Income Tax Rates - on income from mineral processing at 30%. from mining operations at zero % from mining operations relating to industrial

minerals at (Y = 30%+[a-(ab/c)]).

2015 Mining Tax Regime – January to June 2015

Mineral Royalty rate based on type of mining operation – 20% for open cast operations 8% for under ground operations 6% on industrial minerals

Opencast operations include – winnings from leaching, tailing dumps or any similar dumps.

2015 Mining Tax Regime – Advantages & Challenges

The regime was premised to provide the following advantages - • Avoid the complexity of dealing with transfer

pricing and other tax planning transactions. • Administrative efforts targeted at a simplified

regime (one tier regime). • Generation of increased revenues than the two-

tier system.

2015 Mining Tax Regime – Advantages & Challenges

The regime was premised to provide the following advantages - • All mining companies contribute a significant

level of revenue, unlike previously were most mining companies were not contributing corporate taxes because of accumulated tax losses.

• Ease revenue forecasting for Government.

2015 Mining Tax Regime – Advantages & Challenges

Challenges posed by the regime- • Ascertaining correct production quantity arising

from open pit and underground mines as well as leaching processes where companies have all type of operations for mineral royalty purposes.

• Indifferent to individual mine operational costs • Cash flow challenges for the mines

2015 Mining Tax Regime – Advantages & Challenges

Challenges posed by the regime- • Determining appropriate basis of apportioning

income arising from “mineral processing” and “mining operations” for CIT purposes.

• Determining appropriate cost apportionment basis for capital allowance purposes in relation to assets that have dual use (e.g smelter, refinery, buildings)

Expected New Mining Tax Regime – July 2015

Government expected to introduce the following new proposals • Income from Mineral processing to be taxes at

35%. • Revert to taxing income from mining

operations at a variable tax rate (Y = 30%+[a-(ab/c)]).

• Limit deduction of losses brought forward to fifty percent of taxable income.

Expected New Mining Tax Regime – July 2015

Government expected to introduce the following new proposals – • Reduce the mineral royalty rate for open pit

mining from 20% to 9% • Reduce the mineral royalty rate for

underground mining from 8% to 6% • Strengthen penalization of offences.

Capacity Building Initiatives

Mining Unit

• Deals with all the tax affairs for all mining companies

• Trained personnel in the unit

• Includes staff with mining qualifications –mining engineers and metallurgists

Capacity Building Initiatives

Mineral Value Chain Project

• Reporting and monitoring of the mining value chain

• Setting up of laboratories for mineral analysis

• Use of weigh bridges for mineral quantity verifications

• Automation of export permits issuance

Capacity Building Initiatives

NORWEGIAN TAX AUTHORITY

• Capacity building for taxation of large taxpayers.

• Audit support

• Data analysis skills support

• Provision of auditing tools

Capacity Building Initiatives

OECD

• Capacity building in taxation of international transactions

• Review and advise on transfer pricing audits

• Workshop – international mining expert

• Review of Transfer Pricing legislation