Zambia Income Tax (Amendment) (No. 2) Act No. 17 of 2025 — Interest Deduction Cap and USD Functional Currency for Mining

Mechanism

Act No. 17 of 2025 forms part of Zambia's 2025 fiscal consolidation package alongside Act No. 10 (MAT, loss carry-forward universalisation). The two statutes share a bill-session origin (2025 National Budget cycle) but address distinct tax policy levers:

Interest deduction cap (30% EBITDA rule): All companies are now subject to a thin-capitalisation-style interest deduction limit. Only 30% of EBITDA may be offset by gross interest expense. Disallowed interest carries forward for up to five years (general entities) or ten years for mining and electricity-generation companies. The extended carry-forward for mining reflects Zambia's recognition that copper and cobalt projects are capital-intensive with long amortisation curves — the cap itself raises the effective tax burden on leveraged mine operators, while the extended carry-forward moderates that impact over the project lifecycle.

USD functional-currency option: Mining companies where ≥75% of gross income is foreign-exchange-denominated and sourced from outside Zambia may now maintain statutory accounts in US dollars rather than Zambian kwacha. This is significant for operators whose revenue is priced in USD (all copper and cobalt sales) but who previously faced kwacha devaluation noise in their tax accounts. Reduces currency-mismatch risk in taxable income calculations and brings Zambia closer to regional peers (DRC and Tanzania allow USD accounts for qualifying miners).

Downstream implications

• Leveraged mining groups most affected by EBITDA cap: Ivanhoe's Kipushi JV (high construction debt), First Quantum's Kansanshi expansion financing, and Glencore's Mopani rehabilitation loans all have above-average interest-to-EBITDA ratios. The 10-year mining carry-forward mitigates but does not eliminate the impact during ramp-up years.
• USD accounts provision is net positive for operators: Eliminates kwacha depreciation distortions that inflated taxable income in prior years; reduces incentive for transfer-pricing structures designed to book FX gains offshore.
• Stacking effect with Act No. 10: Combined with the 1% MAT on turnover (Act No. 10), Zambia has materially raised the tax floor on mining companies in a single legislative session. Total fiscal uplift to government is modest given the mine-level debt structures, but signals continued ratcheting of mining fiscal terms.
• Watch ZCCM-IH exposure: State mining holding company ZCCM-IH participates in Kansanshi (20%) and Lumwana (indirect); dividend flows to government depend on after-tax profitability of JV partners.

Open questions

• Whether the 30% EBITDA cap applies to existing project-finance debt or only new facilities — no transitional provision identified in publicly available text.
• Whether the USD accounts option requires ZRA pre-approval or is self-elected; implementation guidance awaited.
• Impact on Barrick's Lumwana Super Pit expansion ($2bn capex announced 2023) — project-level debt drawdowns will test the carry-forward mechanism through the mid-2020s.