While Zambian miner Kagem Mining successfully generated $27-million in sales from an emerald auction held earlier this week, it says the country’s "extreme" tax rates are crippling the gemstone industry.
Kagem is 25% owned by the Zambian Industrial Development Corporation and 75% owned by JSE-listed Gemfields.
While the sale of high-quality gemstones in Singapore successfully raised foreign exchange earnings for Zambia, Kagem warns that the Zambian export duty on gemstones was hampering both production and the sector's growth.
The 15% export duty came into effect on January 1 and was levied in addition to the longstanding 6% mineral royalty tax. This means that law-abiding Zambian gemstone exporters face a 21% turnover tax, compared with 2.5% and 2% in large emerald exporting countries Colombia and Brazil, respectively.
In addition to the 21% turnover tax, Kagem’s profits are then taxed at the prevailing 30% corporate tax rate, imposing an aggregate tax rate that it says has closed the door on foreign investment in the Zambian gemstone sector.
Small-scale miners have widely bemoaned their inability to attract investors, which are more likely to enter the Colombian and Brazilian markets.
Kagem has sought to keep Zambian emeralds competitive on the international market by shouldering the export duty itself rather than passing it on to customers, who would simply reduce their offers by 15% if they were asked to pay the export duty.
Either way, the export duty means Kagem has significantly reduced funding for the mine, which provides more than 1 150 direct jobs, up from 421 in 2009.
Kagem says it has held extensive discussions with the Zambian government regarding the 15% export duty.
Kagem has earned $79-million in auction revenues this year – the second‐best calendar year performance since the auction system was introduced a decade ago – but despite the robust mining and sales performance, Kagem efforts are unlikely to be rewarded given that the auction revenues of $79-million are poised to suffer both 15% export duty and 6% mineral royalty taxes, totalling $17-million.