The Zambian government has informed the mining companies in the country of its intention to increase mineral royalty tax from the current 0.6 percent to around three percent as a way of reaping benefits from rising copper prices.

Finance Minister Ng'andu Magande was quoted by local media Tuesday as saying that the increment is subject to negotiations with the mining companies.

He said the government is also reviewing other taxes, which firms were exempted from paying when they received mining licenses and the new taxes could be introduced before the end of this year.

The minister said that the average mineral royalty in the world is about 2.5 percent to 3 percent and that is the margin the government is working on.

But key mining companies have urged the government to be cautious as it seeks to review the mining royalties and taxations on the back of soaring copper price in the international markets.

The southern African country is one of the biggest copper- producing country in the world. Its peak annual output reached 700, 000 tons in the mid 1970s and then dropped gradually to 300,000 tons in the 1990s.

To reverse the situation it started hence privatization of its copper mines by selling most of the mines to foreign companies.

In recent years due to more foreign investment, good management and advanced technology and increased prices in the international market, its output gradually picked up to 440,000 tons in 2005.

The government is in the process of reviewing the royalty, which were reduced from 2.5 percent to 0.6 percent when the mines were privatized to attract investment, foreign investment in particular, in the sector.

Now the government hopes to enhance its earnings by increasing the tax percentage. "The best way is to look at how other major producers are effecting the tax. After the negotiations with mines we hope the agreement will not fall below the world average," the finance minister said.

Under the Mines and Minerals Act and the local taxation laws, local and foreign mining companies carrying our copper and cobalt extraction operations in the copper-producing country have a corporate tax of 25 percent, compared with the 35 percent before. Mining companies are also exempted from paying dividends realized from copper produced and sold.

Vedanta Resources and First Quantum Minerals, two major foreign mining companies in Zambia, said that they support the government's plan to review taxations but hope the review will not affect their operations and profitability.

Source: Xinhua