Zimbabwe gets tough on mining royalties

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ZIMBABWE has introduced a new mining law that imposes a double penalty on entities that fail to pay royalties.
Mining royalties, a usage-based tax calculated as a percentage of the gross fair market value of minerals produced, are levied in terms of the Mines and Minerals Act, while the royalty rates are fixed through the Finance Act.
According to the recently gazetted Finance Act of 2019, “any person responsible for remitting royalties timeously and has failed to do so, the commissioner shall serve upon that person notice to pay double the amount of royalties payable.”
Zimbabwe currently charges royalties on gross revenue from mining products at 15 percent for diamonds and five percent for gold.
Base metals and industrial minerals attract a royalty of two percent while a one percent charge is levied on coal revenues.
The latest move comes at a time when mining stakeholders have raised concerns about the southern African country’s royalties, which are among the highest in the region, saying they are punitive and scare away investors while disadvantaging local players.
“There is a compelling case to review these royalties downwards across the sector to provide incentives and match regional peers, which compete for the same dollar with Zimbabwe.
“Miners have been lobbying government on double taxation and reduction in royalties for years now,” Christina Muzerengi, a tax partner at Grant Thornton said at The Financial Gazette’s Tax Conference last year.
Bhekinkosi Nkomo, resources group RioZim’s chief executive, urged Zimbabwe to adopt a more investor-friendly royalty regime.
“Worse still, the 15 percent is not allowable as a deduction in tax computations, which makes the royalty effectively over 20 percent because you have to write it back in calculation tax,” Nkomo said at the group’s annual general meeting last year.
Still, with the recent changes, government does not seem to be keen to let off.
In terms of the new law a “person upon whom the commissioner has served a notice and who fails without just cause to comply with the notice within the first seven days … shall be liable for a secondary civil penalty of 30 US dollars for each day the person remains in default”.
If the person continues to be in default after the period specified they will “be guilty of an offence” and “liable on conviction to a fine or to imprisonment”.
In recent years, government has sought to increase taxes on virtually all consumables and popular products in Zimbabwe to cover for the declining tax base — with the latest development on this front coming in the form of a review of the transfer tax from five percent per transaction to two percent per dollar, which government claims to have brought in more than RTGS$500 million since its introduction in October last year.
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