IMF urges Zambia to up mine taxes to fight poverty

LUSAKA (Reuters) - The International Monetary Fund (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 contoversial windfall tax on mining earnings.

Copper is the main export for this southern African country, accounting for over 63 percent 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 percent mining windfall tax in April 2008, along with a 15 percent profit variable tax to raise revenue, which was to be invested in infrastructure, particularly in poor rural areas.

Lusaka also raised its mineral royalty to 3.0 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.

But the government lifted the windfall tax in January after some foreign investors threatened to take 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 re-introduced.