Govt proposes new tax for miners

GOVERNMENT has proposed new tax measures for chrome miners and a further increase in mining royalties for precious minerals on the back of a surge in shipment contribution from the entire sector during the first half of the year.

The state is currently levying 15% corporate tax on net profit generated by miners as well as royalties ranging from 2% for base metals to 10% for diamonds.

 

Finance minister Tendai Biti in his Mid-Term Fiscal Policy review on Wednesday proposed a 50 basis points increase on royalties for minerals such as gold and silver, saying the current revenue inflows from mining tax and royalties by the extractive industry was “unacceptable as it was unpalatable”.

The mining industry last year generated US$1 billion in exports and contributed US$44,8 million in corporate tax, Vat, Paye and royalties to state coffers. This year’s total shipments are expected to surpass last year’s figure with US$598 million having already been raised in the first six months of the year.

The contribution of the mining sector to the Gross Domestic Product has been on a free-fall in the last decade, declining to as low as 2% in 2008 from 9% in 1999. This decline at one stage reduced mining activity to about three registered mines — Zimplats, Mimosa and Murowa from at least 100 mines before the economic meltdown.

Other mining companies that remained operational were run on a care and maintenance basis during this same period.

Government is expecting US$1,75 billion by year-end in revenue and increasing taxes seems to be the only way to generate the money in a country with limited foreign direct investment.

“Despite improvements in the price of precious metals on the international market, tax revenue contribution of the mining sector to the fiscus remains insignificant,” Biti said in parliament.

He blamed erratic energy supplies and limited lines of credit for low productivity. Because of these factors, he revised growth projections to 31% from 40%. Gold production during this period fluctuated between 0,61 tonnes and 0,52 tonnes, while asbestos continued to be on a downward trend.

“I, therefore, propose to review upwards the royalty rate on precious metals from 3.5% to 4% of the gross market value with effect from 1 October 2010,” the minister said.
Royalty applied to mining activity is the charge incurred by companies for exploiting mineral resources owned by the state.

Analysts, however, contend that the new tax proposals will be criticised by miners who feel that although Zimbabwe has mineral diversity, the quality and quantity of ore does not match that of regional countries like Tanzania, Zambia, DRC and South Africa.

The Finance minister said government would next month raise export tax on chrome to 20% from 15% as an incentive to encourage value addition on chrome ore, currently being exported in raw form.
Monthly chrome production, according to official figures, was stagnant at 400 kg since January.

The Great Dyke, which stretches 500 km in Zimbabwe, is host to vast ore deposits including gold, silver, chromium, platinum, nickel and asbestos. Over 200 tonnes of chrome were extracted in the past year.
For the umpteenth time, Biti also threatened to repossess undeveloped mining claims held for speculative purposes in what he termed the “use it or lose it principle”.

 

Bernard Mpofu

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