Proposed Mining Sector Reforms in the 2023 National Budget

11 October 2022

Introduction

The mining sector is arguably one of the corner stones of the country’s economy accounting for 17.5% of the country’s GDP and over 70% of foreign exchange earnings in 2021. However, the COVID-19 pandemic in the past year was among others, a major contributing factor to the low production experienced in this sector.

In the 2023 National Budget Address by the Minister of Finance (the “Minister”), specific key reforms have been proposed for the enhancement of the mining sector with emphasis to meet the 3 million metric tonnes copper production in the next nine (9) years.

Increased copper production

The Minister noted that the Democratic Republic of Congo, has not only caught up with Zambia’s production levels but has expanded significantly to producing about  1.8 million metric tonnes of copper. In a bid to achieve the proposed target of 3 million metric tonnes copper production by 2032, investors are expected to see the following progressions:

• Creation of more direct mining jobs;
• Maintenance of the mining policy and consistency in the mining sector;
• production at the newly created Enterprise Nickel Mine in Kalumbila by First Quantum Minerals to commence in 2023; and
• the government to resolve the complex challenges at the Konkola Copper Mine.

Exploration

In order to meet the 3 million metric tonnes production target, the government has proposed to utilise the private sector capital to carry out aerial mapping of mineral resources in order to establish lucrative areas for investment.

Regulatory

In order to enhance the regulatory oversight of the government in the sector, the government has proposed the following:

• to establish a mining regulatory institution which will be responsible for issues relating to non-compliance and regulation in the sector.
• enhance reporting requirements of production, costs and mineral content;
• acquisition of golden shares in mining companies by the government;
• formalize artisanal and small scale mining in Zambia;
• ensure that artisanal and small scale miners have access to affordable capital and partner with foreign investors through Joint Ventures;
• introduce a lower tax regime for artisanal and small scale miners;
• create offtake market opportunities and streamline the taxation system in the mining sector;
• formalize trade in gold by licencing buyers of gold and other precious minerals.

Tax concessions

With respect to taxes in the mining sector, the following amendments have been proposed:

• reduce the property transfer tax on mining rights held by exploration companies to 7.5% from 10%;
• increase the property transfer tax on land, shares and intellectual property from 5% to 7.5%;
• replace the current corporate income tax regime with a presumptive tax for artisanal and small-scale mining. The presumptive tax will be based on the gross turnover less mineral royalty paid at the applicable turnover tax rate; and
• restructure the mineral royalty payable in respect of copper which will now apply on an incremental value in each adjusted price band as opposed to the aggregate value when the price crosses the respective price threshold. We set out below the adjusted price bands:

Price Range	Taxable Amount	Rates (%)
Less than USD 4,500 per tonne	The first USD 4,000	4.0
USD 4,001  per tonne or more but less than USD 5,000 per tonne	The next USD 1,000	6.5
USD 5,001 per tonne or more but less than 7,000 per tonne	The next USD 2,000	8.5
USD 7,001 per tonne or more	The balance	10

 Conclusion

With the government’s focus to achieve the 3 million metric tonnes copper production in the next nine (9) years, the proposals set out above create an investor friendly mining atmosphere. We shall, in the coming days delve into each of the reforms and how the same can be harnessed by potential investors.