THE country’s platinum mining giant Zimplats has threatened to stop production because of a US$16,6 million ($400 billion) withholding tax dispute with the Zimbabwe Revenue Authority (Zim
ra), the Zimbabwe Independent has established.
Of major concern to the white-gold extracting firm is that the government is now reneging on an agreement struck with previous Mines ministers, Sydney Sekeremayi and Edward Chindori-Chininga, on the tax exemption.
The state’s sudden u-turn on the issue has resulted in the holding company of Zimplats, South African-based Implats, seeking the intervention of Vice-President Joseph Msika.
According to documents to hand, one key condition of the investment was that the miner would be exempt from paying withholding tax. This provision does not however exist in the country’s statutes which has prompted Zimra to demand the tax.
Zimplats chief executive officer Greg Sebborn last Thursday wrote to Mines Permanent Secretary Thabani Ndlovu to remind government of the international agreement signed by Zimbabwe, Hartley Platinum represented by BHP, and themselves.
He said that should Zimra carry out its threat to force the company to comply with their demands, operations will have to stop since the company would be unable to meet ongoing costs.
“The impact of this will be severe, not only on Zimplats’ operations but on investor perceptions in general,” Sebborn said.
“A possible re-start will be difficult in view of the cooling and freezing of the furnace which would require considerable time and cost to re-start.”
Zimplats revived platinum mining in Chegutu after BHP pulled out in June 1999 citing viability problems.
Sebborn said that the agreement was specifically crafted to attract large-scale investment in the country.
“In this regard, specific issues were included in the agreement in order to ensure that investors were not penalised by investing large sums of foreign capital in new assets within Zimbabwe, especially in view of the long-term risks and payback periods,” Sebborn said.
“Such clauses include an exemption from sales tax on new capital goods, thereby ensuring that capital costs were competitive worldwide, and an exemption from withholding tax on dividends, thereby ensuring that equity funding costs were not inflated to the point where investment became unviable,” he said
“The agreement is clear in terms of the obligations of all the parties,” he said, “and in the agreement government undertook to give effect to its obligations by way of amending legislation where necessary.”
Sebborn noted that with regard to the withholding tax on dividends, the promised amendments to legislation have not been promulgated into law.
According to the letter, Sebborn said at a meeting between Zimplats, Msika and the Minister of Mines, Amos Midzi, held on Wednesday last week, “it was once again stated that our agreement should and would be honoured.”.
“Today, 15 September 2005, Zimra have insisted that Zimplats pay US$16,6 million immediately for dividend tax (US$3,2 million) and penalties and interest (US$13,4 million) failing which they will take immediate unspecified action to ensure compliance with their demands,” Sebborn said.
“Zimplats now finds itself in a situation where it is under pressure from Zimra to meet obligations from which it had been explicitly exempted in both the original Mining Agreement with government and subsequent assurances from the Ministry of Mines,” he said.
Currently withholding tax is 20%, but critics have noted that it is too high and discourages savings.
Last Wednesday, Implats chief executive officer Keith Rumble wrote to Msika expressing concern that Zimra was now hitting them below the belt contrary to the original agreement.
“Shortly after our meeting yesterday, Zimra demanded payment of US$16,6 million of which US$13,4 million is by way of penalties dating back to 28 January 2003 for dividend tax, failing which they intend to immediately take unspecified action against the company,” Rumble said.
“As I am sure you will agree, this action runs contrary to the signed agreement, and to all the assurances given by your government to date. The effect of the unspecified action to force the company to comply with Zimra’s demands would be to shut down the operations since the costs would not be met.”
Since BHP closed in 2000, the country has not had any significant investment because of the high perceived political and business risk.
Zimplats’ pending operations have been hailed by the government as suggesting confidence in Zimbabwe by external investors.
Rumble appealed to Msika that the issue be resolved as a matter of urgency, pledging that his company would work constructively with the government to ensure that operations are not affected and that investor “perceptions remain positive”.