IMF Urges Zambia to Up Mine Taxes to Fight Poverty

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"Enhanced tax collections, including from mining will be critical [to] increase capital and social spending."

The IMF on Tuesday urged Zambia, Africa's top copper producer, to increase mine taxes to fund roads and hospitals, even after the country scrapped a controversial windfall tax on mining earnings.

Copper is the main export for this southern African country, accounting for over 63% of the country's foreign earnings, and the IMF wants Zambia to raise more revenue to improve public finances and fight poverty.

The IMF has previously said that although Zambia weathered the global downturn last year, government revenue collections have fallen short of expectations.

"Enhanced tax collections, including from the mining sector will be critical for providing space for increase capital and social spending," said George Tsibouris, head of an IMF staff mission that visited Zambia from February 17 to March 2.

Copper prices have recovered from four-year lows recorded early last year, boosted by demand from China, the world's largest consumer. Three-month copper futures on the London Metal Exchange are trading around $7,416 a tonne.

With the backing of the World Bank, Zambia imposed a 25% mining windfall tax in April 2008 and a 15% profit variable tax to raise revenue, which was to be invested in infrastructure, particularly in poor rural areas.

But the government lifted the windfall tax in January after foreign investors threatened legal action, accusing authorities of breaching agreements they signed with the mining companies that promised lower taxes.

The government says the windfall tax was scrapped to boost foreign investment in mining, and would not be reintroduced.

Last month, Zambia said it plans to further review the Mines and Minerals Act this year to reduce the cost of doing business and make the mining sector even more attractive to investors.

Copper output in Zambia rose 14% to 697,860 tons last year and could hit 1.0 million tons by 2011.

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