HomeCommentPost Chamber: Govt urged to review mining tax regime

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Deloitte and Touche managing partner Tawanda Gumbo told the Chamber of Mines annual general meeting held recently that MMCZ charges a 0,975% commission on all exports, which increases costs for mining companies.

Miners also have to set up offshore marketing entities which are subject to a withholding tax, which further increases costs.

Gumbo said the tax legislation should be formulated in such a manner that it remains relevant in the foreseeable future as high taxes will not be practical when mineral prices fall.

It was generally agreed at the conference that the mining fees and charges which were hiked in 2011 and 2012 impact negatively  on the economy, further driving up production costs.

According to Chamber of Mines president, Winston Chitando, the fees and charges are pegged at levels where mines are forced to cede exploration ground because it is too expensive to hold on to.

The fees placed many holders of mining titles in a lose-lose position. Chitando said the chamber would continue engaging the Mines ministry with the aim of getting the fees revised.

Prior to the new regime, Zimbabwe had one of the lowest taxes and royalties system. As such, the increase should not be seen at the level of percentage increases, but from the low base that the taxes were coming from.

In 2011, the total tax paid by the mining sector to the government was estimated at around US$311 million representing  about  12% of the US$2,6 billion revenue collected by government last year. If diamonds are incorporated, the contribution increases to around 18%.

Total tax paid to the government is approximately 17% of mining industry revenue and 60% of the sector’s profitability (effective tax).

Gumbo said taxes need to be stratified over a longer period. “If corporate tax can be stratified over four quarters in one year, then perhaps the government can do the same over five years or more for these entities with longer cycles,” said Gumbo.

In the current quarterly payment dates, companies pay 10%, 25%, 30% and 35% of forecasted profit margins respectively over the four quarters. This, Gumbo said, can apply to the mining sector.

“Assuming a company forecasts making a million dollars in taxable income over the next five years, then it can pay 10% of the tax payable as forecast in the first year and other percentiles in the coming years,” said Gumbo, noting that just like quarterly debt payments, the total tax paid would still be 100% of what would have been paid anyway.

“The main reason here is to accommodate the initial stages of a mine’s life cycle  that would be capital heavy and low on profit.”

Overall, government needs to understand the unique environment and customise tax regimes for this particular sector.

A regional comparison of the fees and charges shows that the new fees are high. “The competitiveness of the mining environment has been dealt a severe blow by these new fees,” said Gumbo.

Zimbabwe charges 15% royalty on diamonds and 10% on platinum. This is the highest among regional countries excluding South Africa. Angola charges 5% on diamonds and 5% on platinum. Botswana charges 10% on diamonds and 10% on platinum. Zimbabwe charges 7% royalties on gold but this is lower than the 10% charged in Botswana and Mozambique.  — Staff Writer.

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