SMM: KPMG Zambia tax partner Michael Phiri said that although the epidemic had a "negative and direct" impact on the gem industry, the impact of the copper mining industry was greater.
Increased demand has boosted international copper prices, which are currently trading at about $6750 a tonne. However, the country's smelting capacity has been exhausted, which, although it began before the novel coronavirus pandemic, has been exacerbated by the epidemic.
He explained that a 16 per cent value-added tax was levied on domestic copper concentrate sales and a 10 per cent tariff on copper concentrate exports.
Phiri predicts that in order to boost production, the government will abolish the value-added tax on domestic sales of copper concentrates and suspend tariffs on copper concentrate exports.
The alternative, he said, would be for mining companies to cut production, which would lead to unemployment and reduce government revenue from taxes.
As a result, mining companies will be forced to cut production at a time when copper demand and prices are both high.
"as the rain approaches, we must ensure the safety of the inventory, otherwise the copper ore can be washed away by Rain Water."
Opencast mining companies can invest in production, but they do not want to export concentrates because of a 10 per cent export tariff, he added.
In addition, he said that although VAT and export duties existed before the pandemic, it seemed negligent not to abolish VAT on domestic copper concentrate sales as part of novel coronavirus's stimulus measures to stimulate the epidemic. The Ministry of Finance has solved the problem of abolishing VAT and delayed the collection of export duties.
Because VAT applies to domestic sales of copper concentrates, smelters are less keen to buy concentrates in the domestic market. They prefer to import. On the other hand, refined copper exports are not subject to export duties, but concentrate exports are subject to a 10% export tax. "
He added that because of the 10 per cent export tariff, the first choice was to export refined copper rather than copper concentrate. "if it is difficult to refine copper domestically due to refinery capacity constraints, and the concentrate cannot be exported because of a 10 per cent tariff, then there is no choice but to reduce production."
Phiri said that in order to reduce production costs, the government should refer the study to independent consultants and make appropriate recommendations.
He added that copper miners were generally adversely affected by the cost of mine use and its non-deductibility.
"the structure of mine usage fees is that if the copper price reaches $6000 per tonne, then the mining usage tax rate will increase from 6.5 per cent to 7.5 per cent, so the income is not as good as the copper price is only slightly less than $6000."
If copper prices hovered between $6000 and $6060 a tonne, the return on copper sales would be lower than the price of $5999 a tonne. Non-deductible mining usage tax also discourages reinvestment because companies pay mineral use taxes to the government, which is unusual compared with other global systems.
He said Zambia produced about 750000 tons of copper in 2019, down from 850000 tons in 2018.
If these challenges are not addressed, copper production will continue the downward trend. In addition, the financial system does not encourage new investment in the industry. "
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