* Offenders face unspecified punishments
* Mining remains key to economic diversification
(Adds analyst quote, higher taxes)
By Shapi Shacinda
JOHANNESBURG, July 17 (Reuters) - Zambia is conducting an audit of mining companies to determine their earnings and will punish companies found cheating over declaration of revenues, Finance Minister Situmbeko Musokotwane said on Saturday.
Musokotwane said the southern African country, the continent’s largest copper producer, was also on course to produce 700,000 tonnes of copper this year following a rebound in metals output at the mines and a rally in global prices.
Copper output at 675,000 tonnes last year was far above expectations of a forecast 500,000 tonnes.
Musokotwane said the audit had been ordered following claims by some Zambians, including the opposition parties and mining analysts, that the country was not reaping enough benefit from its key mining industry because of mis-reporting of revenues by some foreign owned mining companies.
Major opposition parties and civic groups have even asked for re-introduction of a 25 percent windfall tax the government scrapped this year, after an outcry from the mining companies.
“We have asked for a special audit to be done on the mining sector and if we find someone cheating, we will deal with that,” Musokotwane told Reuters in a telephone interview from Lusaka.
“Cheating is dealt with by punishing offenders, but you cannot deal with cheating by increasing tax rates, you can’t,” he said.
Musokotwane said Zambia would in the long term begin to accrue more revenue from its mines after foreign investors put in up to $5 billion in reviving the mining industry in the last eight years.
“You have to be patient that you allow investments to come, make it stablise and then the tax revenue will come and I am absolutely sure the tax revenues will come up,” he said.
Analysts say pressure has been mounting on the government from the opposition to raise taxes in view of a presidential election in 2011 with mining discussions increasingly becoming emotive in this country of 13 million people, where the mines are a major employer.
Lusaka-based mining analyst Robert Sichinga said the government’s should reintroduce windfall tax to raise more revenue for spending in social infrastructure such as schools and hospitals.
“Windfall tax was good because you would use it to earn more revenue and it should be re-introduced, there has been a major failure in this area,” Sichinga said.
But Musokotwane said higher taxes would scare away foreign investors.
Musokotwane said the government would continue with policies that support growth of the mining sector to ensure the mines help with the diversification of the economy.
“We need a strong mining sector to help us diversify the economy,” Musokotwane said.
Some of the foreign mining companies operating in Zambia include Canada’s First Quantum Minerals (FM.TO), London-listed Vedanta Resources Plc VED.L, Equinox Minerals <EQN.TO)>EQN.AX,Glencore International AG [GLEN.UL] of Switzerland and Metorex MTXJ.J of South Africa. (Reporting by Shapi Shacinda; Editing by Toby Chopra)