Zambian mining sector united in reaction to new tax measures
LUSAKA, ZAMBIA – First Quantum Minerals (FQM) has announced plans to reduce its workforce by 2,500 local and expatriate employees during the first quarter of 2019, in addition to an unspecified number of contractors. The redundancies will be achieved in a phased manner.
FQM says the difficult and sad decision to make lay-offs originates from the government’s 2019 Budget, which includes an additional 1.5 percentage point increase on all mineral royalty tax bands, and an additional two royalty bands of 8.5 and 10 percent when the copper price exceeds US$7,500 and US$9000 per tonne respectively. Critically, mineral royalties will cease to be deductible from corporate income tax; a measure not seen in other copper mining jurisdictions.
Other measures include the introduction of a yet to be quantified sales tax to replace VAT, meaning companies cannot reclaim tax on input purchases. It is thought this measure will be most damaging to local Zambian mine suppliers.
FQM’s lay-offs will affect 1,250 direct employees at the company’s Kansanshi Mine in Solwezi and a further 1,250 at its Sentinel Mine at Kalumbila. Both local and expatriate staff across all departments will be impacted and employees will receive redundancy pay in line with statutory requirements.
FQM has said that it is with deep regret that the tax measures will lead to a reduction in employee headcount. However, FQM has also been clear that it will do its upmost to mitigate the impact the measures will have on its employees and on the broader communities around its mines.
Dismay at the new tax regime has been echoed by the Zambia Chamber of Mines, which warned that more than half of Zambia’s mining firms will become loss-making at current copper prices if the government goes ahead with the tax increases. The changes make Zambia one of the least attractive mining jurisidctions in the world and will result on widespread job losses, said the Chamber.
The nation’s largest taxpayer, FQM has invested US$5.7 billion in its Sentinel and Enterprise mines, and Kansanshi mine and smelter, and has paid more than US$3 billion in taxes in the last ten years, transforming the economy of North-Western Province and creating employment for more than 8,500 people.