On January 16, 2009 Rupiah Banda, President of Zambia, stated that the government was contemplating a cut in mining taxes after numerous complaints and threats of litigation from foreign investors in the country's struggling mining industry who claim that the government has reneged on the development agreements that it signed with them to maintain lower taxes.
In April of 2008 the government introduced a 25 percent windfall tax, a 15 percent variable profit tax (on income above 8 percent of sales) and raised mineral royalties to 3 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.
Since the commencement of the global economic slowdown, the Zambian government has been deliberating the best way to mitigate the impact on mining brought about by the effects of higher taxes introduced in 2008 and the reduction in global metals prices. Zambia also has some of the highest fuel prices in Southern Africa (at nearly $2 per litre), this is compounded by the high electricity tariffs that mining operations in Zambia are subject to.
Copper is Zambia's biggest export and the mines are a major source of employment in the region. Consequently, Ministers have been in crisis talks throughout the month of January with owners of copper and cobalt mines in an attempt to determine ways to cut operational costs to keep the mines open. Nevertheless, the combined impact of the drop in commodity prices, the new tax regime and increased fuel/energy costs has already taken its toll on the Zambian mining sector with the closure of Luanshya Copper Mine in November 2008.
Consequently, foreign owners of Zambian copper/cobalt mines have been lobbying the government to cut fuel prices and mining taxes and to reduce electricity tariffs to help them survive a commodities downturn.
On January 30, 2009, the Zambian Finance Minister, Situmbeko Musokotwane, stated in his budget speech that the Zambian government would abolish the controversial 25 percent windfall tax on mining companies from April 1, 2009. However, the 15 percent variable-profit tax which (in order to capture windfall gains arising in the sector) will be retained. Minister Musokotwane also confirmed that the Zambian government will cut duty for heavy fuel oils from 30 percent to 15 percent and will remove customs duty on copper powder, copper flakes and copper blisters in the hope of reducing the operating costs of mining companies as well as encouraging the utilization of local smelting capacity