Understanding Tax Holidays: Why New Mines Pay No Profit Tax for Years
By: Kennedy Chileshe
There has been a lot of talk about mining companies getting tax holidays. As an ordinary Zambian, you might feel like the government is giving away our money. But before we rush to judgment, we need to understand what a tax holiday really means under Zambian law. The truth is simpler than you think, and once you understand it, you will see why we must not allow anyone to lie to us about this issue.
First, you need to know that there are two main types of taxes that mining companies pay. The first is Mineral Royalty, which is paid on every tonne of copper dug out of the ground. Think of this as a “door fee” that every mine pays regardless of whether they are making money or not. The second is Corporate Income Tax, which is a tax on profit. This is the tax that often becomes zero during a tax holiday. The key point is simple: you cannot tax profit if there is no profit.
So why do new mines go for a long time without making a profit? Opening a mine is unimaginably expensive. Before selling even one tonne of copper, a mining company spends billions of Kwacha on exploration, digging shafts, buying massive trucks, and building processing plants. Zambian law allows these companies to deduct all those costs from their revenue. For example, imagine a new mine spends $2 billion to open. In year one, they sell copper worth $1 billion. If their running costs are $1.5 billion, they have made a loss of $500 million. Because there is no profit, they legally pay zero Corporate Income Tax. This is not a gift from the government. It is simple mathematics.
What many people call a “tax holiday” is often just the legal ability for a mine to carry forward its losses. Here is how it works. A mine loses money for the first four years. In year five, they finally make a profit of $100 million. However, they still remember the $500 million loss from the early years. The law allows them to subtract that old loss from their new profit. On paper, they still have a loss of $400 million, so they pay zero tax again. This can continue for up to ten years. This is why you hear people say mines pay no tax for a decade. It is not a special discount. It is the mine recovering from its huge initial spending.
The good news is that Zambian law changed in January 2025 to protect citizens. Previously, a mine could use 100 percent of its past losses to wipe out its entire tax bill. Now, under the new 50 percent cap, a mining company must pay tax on at least half of their profit, even if they still have old losses. For example, if a mine makes a profit of K100 million and has old losses of K200 million, the old law allowed them to deduct all K100 million and pay zero tax. The new law says they can only deduct K50 million. They must pay tax on the remaining K50 million. This ensures that the government always gets a cheque.
In the end, understanding tax holidays comes down to understanding one simple fact: you cannot tax profit that does not exist. Throughout this article, we have seen that Zambian law separates Mineral Royalty, which is paid on every tonne of copper dug, from Corporate Income Tax, which is only paid when a mine actually makes a profit. New mines take years to recover their massive startup costs, so they often show losses on paper and pay zero Income Tax during that time. That is not a special favour or a sign of corruption. It is simply how profit-based taxation works, both in Zambia and around the world.
What many call a “ten-year tax holiday” is often just the legal carry-forward of past losses. The good news is that the 2025 rule now ensures that once a mine becomes profitable, it must pay tax on at least half of its profits, even if old losses remain. So as citizens, we do not need emotional slogans. We need facts.
The next time someone tells you that mines are not paying tax, ask them: which tax? If they cannot answer that simple question, then they are not giving you the full truth. Stay informed, demand that the Zambia Development Agency and the Zambia Revenue Authority enforce the law, and remember, knowledge is what protects our resources, not anger. Now you know the difference. Share it.
Kennedy Chileshe
Proud Zambian