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Zambia: Parliament Makes Further Cuts to Royalty Rates on Production of Minerals

(May 23, 2016) On May 4, 2016, Zambia’s 158member unicameral Parliament passed the Mines and Minerals Development (Amendment) Bill, 2016, to amend the Mines and Minerals Development Act 2015.  (Martine Chileshe, Zambia Mines and Mineral Development Act 2015 – Amendment, TAX NEWS SERVICE (June 30, 2015), International Bureau of Fiscal Documentation online subscription database.)  According to the country’s Constitution, before it can be enacted, the legislation will need the President’s consent.  (Constitution of Zambia (Amendment) Act No. 2 of 2016 (Jan. 5, 2016), § 66, Zambia Parliament website.)  If enacted, the legislation will take effect retroactively as of April 1, 2016.  (The Mines and Minerals Development (Amendment) Bill, 2016, N.A.B. 6, 2016 (Mar. 10, 2016), § 1, Zambia Parliament website.)

Background

If enacted, the legislation would change the royalty rates on production of minerals for the third time in two years.  Under a 2008 Act, royalty rates on production of minerals applicable to license holders were set as follows:

Type Base Rate
base metals norm value 3%
industrial minerals gross value 3%
energy minerals gross value 3%
precious minerals norm value 5%
gemstones gross value 5%

(The Mines and Minerals Development Act, 2008 (Apr. 4, 2008), § 133, Zambia Legal Information Institute website.)  “Norm value” under the Act is “the monthly average cash price per metric ton,” determined by various specified methods, multiplied, e.g., by the amount of the metal or recoverable metal sold; ”gross value” is ”the realised price for a sale … at the point of export from Zambia or point of delivery within Zambia,” subject to certain conditions imposed on the realized price.  (Id. § 133(3).)

In 2014, Zambia amended the 2008 Act and dramatically increased the rates.  It imposed a royalty rate of 20% on open cast mining operations and 8% on underground mining operations, applied on the normal value of base metals or precious metals and the gross value of gemstones or energy minerals.  (The Mines and Minerals Development (Amendment) Act, No. 11 of 2014 (Dec. 23, 2014), § 3, Food and Agriculture Organization of the United Nations (FAOLEX) website.)  It set the royalty rate on industrial minerals at 6% of the gross value of the minerals.  (Id.)  The Act also imposed royalties on production of minerals by unlicensed persons, being 6% of the gross value for industrial minerals and 20% of the normal or gross value for other minerals.  (Id.)

In 2015, Zambia enacted the Mines and Minerals Development Act, 2015, the law currently in force, and substantially reduced royalties payable on production of minerals for both open cast and underground mining operations.  Under this Act, holders of a mining license are subject to a royalty rate of 9% for open cast mining operations and 6% for underground operations, applied to the normal value of the base metals or precious metals and the gross value of the gemstones or energy minerals.  (The Mines and Minerals Development Act, 2015 (Aug. 14, 2015), § 89, Zambia Parliament website.)  The royalty payable on industrial minerals remains unchanged at 6% of the gross value of the minerals.  (Id.; see also Wendy Zeldin, Zambia: Mines and Minerals Bill and Related Income Tax Amendment Bill Tabled in Parliament, GLOBAL LEGAL MONITOR (July 8, 2015).)

Royalties payable on production of minerals by persons who do not hold a mining license were also reduced.  Such persons are now expected to pay a royalty rate of 9% of the normal value for base metals or precious metals and 9% of the gross value of gemstones or energy minerals.  (The Mines and Minerals Development Act, 2015, § 89.)  The royalty rate payable for industrial minerals remains the same.  (Id.)

Proposed Changes

If enacted in its current form, the legislation will further reduce the royalties on production of minerals by adopting the following rates:

Type Base Rate
base metals (excluding copper) norm value  5%
energy & industrial minerals gross value  5%
gemstones gross value  6%
precious metals norml value  6%

(The Mines and Minerals Development (Amendment) Bill, 2016, § 2.)  The definition of norm value  under the new legislation is essentially the same as that under the 2008 Act; the gross value is “the realised price for a sale … at the point of export from Zambia or point of delivery within Zambia,” with no conditions included about the realized price.  (The Mines and Minerals Development (Amendment) Bill, 2016, § 2(5).)

The bill will lower the royalty rate for copper from open cast and underground mining operations by setting it at a minimum of 4% and a maximum of 6%, depending on the prevailing price for copper:

Normal Price per Ton Base Rate
below US$4,500 norm value  4%
between US$4,500 and 5,999 norm value  5%
over (inclusive) US$6,000 norm value  6%

(Id.) The legislation will also cut the royalties payable by unlicensed persons by eliminating the distinction in rates between licensees and non-licensees.  (Id. § 2.)