eBusiness Weekly
Golden Sibanda
Mining firms remain unclear about how the Government’s new mining royalties system works and await guidance from Treasury more than two months since the relevant law became effective.
President Mnangagwa announced in early October this year that Zimbabwe would require companies mining gold, diamonds, lithium, and platinum group metals (PGMs) to pay part of their royalties in refined metal rather than cash.
On November 4, 2022 the President published SI 189, the Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Finance Act) Regulations, 2022 which requires miners to pay royalties partly in kind, partly in foreign currency, and partly in local currency.
Mineral royalties accounted for 2,8 percent of Zimbabwe’s tax revenue in 2021, Zimbabwe Revenue Authority (Zimra) data shows.
Analysts said the current scenario regarding the new royalties system showed authorities might have rushed the initiative as the absence of payment modalities yet appears a cumbersome process.
Ordinarily, banks would collect the financial obligation on behalf of Zimra, which would transfer the funds to the Treasury’s Consolidated Revenue Fund.
In terms of the new arrangement, qualifying minerals for which the royalties must be paid in physical minerals must be collected and delivered to the Reserve Bank of Zimbabwe for custody.
Questions have also emerged about possible complexities that may arise since some of the mining companies may have already shipped out their production.
Chamber of Mines of Zimbabwe (CoMZ) chief executive Isaac Kwesu told Business Weekly in an interview that mining firms were awaiting guidance from Treasury on how they should pay the tax.
“Our members, that is mining houses, are waiting for guidance from the Government. The Government has to give details of how this should be done.
“Our understanding is that they are working on the details, which they will provide to our members to comply. As soon as they give direction on how our members can comply, I think we will be able to do as directed,” Kwesu said.
While efforts to get official comment from the Ministry of Finance and Economic Development were fruitless, Treasury sources said “legislation is there and what remains is only for the technical people from both (the mining) industry and Government to come up with a mechanism which works”.
“But one can imagine that obviously mining companies may want to delay or slow down the process to ‘saying aah I do not know how the new system works’,” a source said.
Asked whether the fact that the legal
requirements for the new royalties system would apply in retrospect would not present challenges, given that some miners may have already sold produce in the intervening period, the source said “once it was announced they were not supposed to ship everything”.
“This new mechanism is supposed to plug out a lot of shenanigans because if (as Government) I say pay partly in physical platinum, it means we must also agree on the grade, but the miners are not very keen on some of these issues.
“Further, there has to be an agreement that part of the royalties to be paid in kind should be a portion of exactly the consignment shipped or sold outside by the miner. So we expect there will be some resistance,” the source added.
Under the Mines and Minerals Act, miners have to pay taxes called royalties on the value of gross output from their mining locations. Royalties are paid to Zimra, and the amounts of royalties and the way in which they are collected are laid down in the Finance Act.
SI 189 amends the Finance Act so that, with effect from October 1 2022 royalties for gold, diamonds, platinum, lithium and other minerals prescribed by the Reserve Bank be paid in kind, forex or Zimbabwe dollars.
In terms of the new system, 50 percent is payable in kind, in a form and purity or quality prescribed by the Reserve Bank of Zimbabwe in a statutory instrument, 10 percent in foreign currency (in cash), and 40 percent in Zimbabwe currency.
Royalties, which range from 5 percent gold) to 10 percent (platinum) for other minerals, must be paid 50 percent in foreign currency (not necessarily in cash), and 50 percent in Zimbabwe currency.
The SI also amends the Reserve Bank of Zimbabwe Act to permit the bank to keep reserves of diamonds, platinum and lithium. The central bank is given the power to make statutory instruments specifying other minerals that may be kept as reserves.
The SI has some odd features which suggest it has not been carefully thought out:
Legal thinktank, Veritas said the SI is retroactive, to say it is back-dated to October.
“This may render the SI invalid… any event it is difficult to see how royalties payable in kind can be collected in retrospect if the minerals on which royalties are to be paid retrospectively have already been delivered to the purchasers.
In terms of section 37A of the Finance Act, Veritas said, financial institutions that receive proceeds from the sale of minerals are responsible for deducting royalties from the proceeds and remitting the royalties to Zimra.
“Banks obviously cannot deduct royalties that are payable in kind, so who must do so? The SI does not say, nor does the Finance Act,” Veritas queried.
It further noted that the SI and the Finance Act were silent as to how Zimra, to whom the royalties must be paid, will transfer the minerals to the Reserve Bank, which is expected to hold the minerals as part of the bank’s reserves. Normally taxes must be paid into the Government’s Consolidated Revenue Fund.
