Miners engage Government over special claims tax

Martin Kadzere

THE Chamber of Mines of Zimbabwe has engaged the Government over a new special capital gains tax, where the buyer of a mining title is now levied 20 percent of the value of the transaction, The Sunday Mail Business can report.

The new tax, implemented through Finance Act Number 13 of 2023, and effective from January 1, 2024 entails a 20 percent levy on the sale of the mining title, including transactions from the past 10 years.

A mining title under the special capital gains tax law includes a claim, block of claims, mining lease or special grant. It also includes any document evidencing a mining right that is precedent to obtaining any of the foregoing titles, such as an exclusive prospecting licence or exclusive exploration licence.

In addition, it can be a share, stake or interest in any mining title.

The new taxation is different from the regular capital gains tax. It is based on the value of the entire mining title transaction, instead of the capital gain made by the seller of the title.

Unlike most capital gains taxes, it is payable by the purchaser. It has the characteristics of value added tax.

The new policy significantly increases the tax burden for the purchaser compared to a traditional capital gains tax where the seller pays based on profit accrued from the transfer of the mining title.

For example, under a typical 20 percent capital gains tax, if an individual sells the mining title for US$1 million, having purchased it for US$500 000, the capital gain will be US$500 000. Tax on the capital gain at the rate of 20 percent will be US$100 000.

However, under the new law, the tax will be US$200 000, being 20 percent of the transaction (US$1 million).

Chamber of Mines of Zimbabwe chief executive officer Mr Isaac Kwesu said its primary concern was to protect companies that previously complied with the law when disposing of mineral rights, as well as promoting investment in exploration activities.

“The Chamber has been actively engaging Government on this matter to ensure that those that complied with the law during disposal of mineral rights are not affected by the new policy,” said Mr Kwesu.

“The mining industry is hopeful that our submissions will be considered and the policy can be revisited to promote capital inflows in exploration activities that guarantee sustained development and growth for our mining industry in the medium to long term,” he added.

Zimbabwe boasts a rich endowment of minerals, ranking second in the world for platinum deposits and holding extensive reserves of chromium, gold, coal and lithium.

This mineral wealth has positioned mining as a crucial pillar of the Zimbabwean economy, accounting for roughly 12 percent of gross domestic product and 75 percent of exports.

The 20 percent special capital gains tax has remained a contentious issue.

Some analysts say while the tax might deter speculative purchases of mining claims, encouraging more productive utilisation of resources, the industry feels this could stifle investment.

Mines and Mining Development Minister Zhemu Soda on Thursday confirmed receiving concerns from the chamber regarding the recently promulgated 20 percent capital gains tax on mining title.

He said the industry was particularly troubled by the tax’s application in retrospect and was seeking clarification on its specific implementation.

“What we did was to refer them to the Ministry of Finance, Economic Development and Investment Promotion since it is the one which administers the taxes and levies,” said Minister Soda in an interview. “But in that correspondence, it was not about the tax policy discouraging the investment but its application of tax in retrospect.”

No comment could be obtained from the Ministry of Finance, Economic Development and Investment Promotion by the time of publishing.

No special capital gains tax applies if the mining title transferred has ceased to exist due to cancellation, forfeiture, surrender or extinction.

Over the past five years, Zimbabwe’s mining sector has witnessed a surge in investment focusing on several key minerals, according to the Zimbabwe Investment and Development Agency.

Leading the charge is lithium, driven by the global demand for electric vehicle batteries and other huge energy storage facilities for multipurpose appliances. This essential mineral has become a major focus for exploration and development, positioning Zimbabwe to capitalise on the clean energy revolution.

Investment has also reached the iron ore sector, with an outstanding example being the US$1,5 billion investment in Manhize, Chivhu, by a Chinese investor.

Iron ore, a vital component in steel production, is another critical mineral found in abundance within Zimbabwe.