Financial Gazette (Harare)
Bernard Mpofu
5 December 2011
THE chairperson of the Parliamentary Select Committee on Mines and Energy, Edward Chindori-Chininga, has called for a review of the latest round of levies imposed on the mining sector, saying this will militate against investment in the sector.
Speaking to The Financial Gazette’s Companies & Markets this week, Chindori-Chininga said the increase in mining royalties introduced by Finance Minister, Tendai Biti, in his 2012 National Budget on Thursday was “a piecemeal” reaction to a problem that required a resolution of the skewed taxation system.
“Our position is that government has to review the whole taxation system to ensure that the mining sector significantly contributes to the fiscus.
The current system is an old system and it needs to be looked at in consultation with stakeholders to ensure that exploration and investment are not affected by the reforms,” said Chindori-Chininga.
“So, there is no need for government to continue complaining on the contribution being made by the mining sector without making these reforms. Piecemeal solutions such as increasing royalties do not solve anything. It’s the taxation system that needs to be resolved.”
Biti last week slapped mining companies with increased royalty fees after noting that mining companies could be taking advantage of loopholes in the tax system and manipulating figures to pay lower taxes.
Biti proposed a review of the existing levies, arguing that prices on the international markets had remained bullish with little reflection on the sector’s contribution to the fiscus.
Out of US$1,7 billion generated by the mining industry until last week, US$441 million worth of mining revenue went into Treasury, he indicated. The mining sector had this year received over US$502 million in lines of credit for investment in equipment, Biti said.
“As I have already alluded to in the 2011 budget, government expects compensation for permanent loss of resources, since minerals are a depleting resource. A fiscal regime which provides government with a fair share of economic rent generated from mineral extraction is, thus, desirable,” said Biti.
“I, therefore, propose to increase the royalty on gold and platinum from 4,5 percent and five percent to seven percent and 10 percent respectively, in order to maximise the contribution of mineral resources to the fiscus,” Biti said.
The measures will become effective from January 1, 2012.
Government currently levies 15 percent corporate tax on net profit generated by miners as well as royalties ranging from two percent for base metals to 10 percent for diamonds. Zimbabwe has over 40 different minerals that include base metals such as chrome, copper, nickel and zinc.
The Chamber of Mines has in the past indicated that royalties should be used to create new industries and skills and not be channelled towards recurrent consumption.
Victor Gapare, the immediate past president of the Chamber of Mines, said during his tenure that funds from royalties “should be used to make Zimbabwe more prospective and this includes more mapping and detailed magnetic surveys which make exploration for minerals easier”.
“We are in disagreement with the proposed royalty levels as they will have a very negative impact on the development of the industry,” Gapare had said, enunciating the view of the industry.
Government revised downwards to 25,8 percent from 33 percent the projected output of the mining sector to the economy due to an anticipated decline in platinum, nickel and palladium production levels despite being optimistic that the sector would continue to drive the economy.
“In 2012, mining is anticipated to remain the major driving force behind overall economic growth, benefitting from further private capital injections, firm international commodity prices and anticipated initiatives to minimise electricity supply interruptions,” Biti said.
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