Broke treasury targets mining firms

Mining companies are set to be taxed more as the country seeks cash for its dry coffers.

Tendai Biti
Tendai Biti

With the agriculture sector still comatose due to the debilitating effects of the “land reform” programme, the government is looking to the lucrative mining sector that is dominated by blue chip international entities such as Implats and Ri-Tinto.

The referendum on a new constitution and elections next year both have to be funded from government coffers. The country is also facing a $700 million budget deficit, further compounding matters for the troubled unity government which is struggling to meet the socio-economic needs of the populace.

In his presentation to parliament last week, Finance Minister Tendai Biti said “the contribution of the mining sector to the fiscus remains subdued in spite of the firming mineral prices,” insinuating that there is need for a review.

Mining firms are still grappling with the indigenization regulations and tax raises would further impact their profitability.

Biti’s argument is that the mining sector has to contribute funding for critical “development and service delivery. He said Zimbabwe had vast “mineral resources” and that expectations were high for players in the sector to spearhead community developments to give back to the communities in which they are operating.

Industry players and government officials said the government, in its upcoming budget for 2012, is likely to tax royalties on gold and platinum production at more than 4.5% and 5% respectively while royalties on alluvial diamonds would be increased “from the current 15%”.

Analysts said it would take some time for the mining sector to re-adjust to the new legislative environment and tax regime. Some of the analysts added that this situation could result in scaled back production, especially for chrome mining.

The majority of Zimbabwe’s mining houses are involved in big community development projects and examples include projects being undertaken by Impala Platinum Zimbabwe unit, Zimplats and the Murowa diamond mine, jointly owned by Rio Tinto and RioZim.

Biti, whose proposals for a tax increase for the mining sector is likely to be rubber-stamped by the evenly balanced parliament, has proposed that an evaluation of the inventory of the country’s minerals resources will be undertaken to assess mining sector players’ contribution to the fiscus.

“This will assist in the evaluation of revenue contribution to the fiscus, thereby improving issues of transparency and accountability in the mining sector,” the Finance Minister said.

The mining sector, alongside the agricultural sector, is expected to continue underpinning economic growth in Zimbabwe, with Biti optimistic that Zimbabwe will manage GDP growth of 9.3% this year. The local economy is however, according to Biti, likely to slow-down next year.

“Gross Domestic Product is expected to be $10 billion at expected growth rate of 7,8%. The basis for the downward revision is politics – because we expect election talk and violence,” he said.

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