Zambia Revenue Authority 2015 MINING TAX REGIME - ZAMBIA PETER PHIRI DIRECTOR – LARGE TAXPAYER OFFICE
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