Zambia relaxes tax rules in win for mining companies

* Zambia trying to end rows over royalties, taxes

* Tax change "step in right direction" - mining chamber

* More than 2,000 workers strike at copper mine

By Chris Mfula

LUSAKA, Feb 23 (Reuters) - Zambia on Monday relaxed rules that have prevented $600 million in tax refunds being paid to mining firms such as Glencore (Xetra: A1JAGV - news) and Vedanta Resources (Other OTC: VDNRF - news) , bowing to industry pressure amid disputes over looming job cuts and mine closures.

The country's tussles with miners over value added tax (VAT) as well as royalties have threatened investment and growth in one of Africa's most promising markets and come at a time when copper prices are near 5-1/2 year lows.

Zambia has been withholding VAT refunds from mining companies and other exporters it says have not produced import certificates from destination countries - a step the government had said was needed for transparency but miners argued was impossible because commodities are traded by third parties.

The new VAT rules mean exporters will only have to provide import documentation from transit countries, not the country of final destination.

"This is a step in the right direction," Zambia's Chamber of Mines President Jackson Sikamo told Reuters.

The changes only apply to future payments and not money owed, although the government and mining companies are going to begin talks about the outstanding funds, Sikamo said.

Konkola Copper Mines, the Zambian unit of Vedanta, said the VAT resolution would allow it to ramp up production and buy more copper from neighbouring mines for its smelter.

The kwacha currency weakened to an 8-month low against the U.S. dollar last week on uncertainty over Zambia's mainstay copper business.

Canada's First Quantum Minerals (Toronto: FM.TO - news) , the biggest foreign investor in Zambia, said the row over VAT refunds had put $1.5 billion of investment on hold.

Zambia still remains in dispute with mining companies over an increase in royalties introduced last month, which miners say could result in 12,000 job cuts and mine closures.

Zambia increased mineral royalties for open pit operations to 20 percent from 6 percent, prompting Toronto-based Barrick Gold to say it would suspend operations at its Lumwana Copper Mine, which supports nearly 4,000 direct jobs.

President Edgar Lungu said on Monday the revenue authority was in talks with mining companies to resolve the royalties problem.

Lungu, elected president in January, also said he would "not allow a single mining job to be lost" at Barrick's mine after 2,000 workers went on strike to protest against the suspension plans.

He suggested one solution could be to find a new partner to jointly run the mine with the government if Barrick closed it. He did not say what would happen to Barrick Gold (Hanover: ABR.HA - news) 's role in the mine in case a new partner was appointed. (Writing by Joe Brock; editing by James Macharia and Susan Thomas)