The Sunday Mail
Livingstone Marufu
The Chamber of Mines of Zimbabwe is pushing to replace the royalty structure introduced in the 2016 National Budget — where mining houses get preferential rates based on production — with a uniform system.
It is argued that the current structure is skewed against small producers and companies that are already struggling to increase output.
The mining sector is under pressure from falling commodity prices on the global market, power outages, high electricity tariffs and lack of capital investment.
Consequently, production is expected to retreat by US$50 million from US$1,85 billion in 2014.
Estimates suggest the sector needs more than US$3,8 million to break even and start new projects.
Chamber of Mines economist Mr Pardon Chitsuro said the current royalty structure only accrued benefits for mining companies with capacity to increase production.
“The 2016 National Budget provides for the reduction in royalty for large-scale producers to three percent (from five percent) on incremental output using previous year production as base year. Unfortunately, the benefit can only be enjoyed by a few mines that have the capacity to increase production.
“The majority of small to medium-scale producers, who are currently facing viability challenges, will not benefit from the reduction in royalty as it is most likely that their output may come down in 2016 due to viability challenges. The Chamber of Mines is of the view that the royalty reduction should be used as a reprieve to high cost as well as incentive to increase production.
“More so, the royalty must be benefited at the point of sale as opposed to claiming it at the end of the year,” he said.
Market watchers say since the country uses foreign currencies, it has to reduce costs and increase efficiency to become competitive. The Chamber of Mines says 80 percent of respondents in a recent survey indicated that the current royalty regime, which is characterised by relatively high rates and non-tax deductibility, was unaffordable and uncompetitive compared to other mining jurisdictions.
Mining companies complain of multiple tax heads and levies.
They say Zimbabwe has one of the region’s highest royalty rates in the region, starting at 1 percent for coal and up to 15 percent for diamonds and other precious stones.
In Angola, royalty fees range from two to five percent, while in South Africa fees are between two and six. The rates for Botswana are three to 10 percent, and four to 5 percent in Namibia.
Said Mr Chitsuro: “A simulative computation of the implications of the royalty reduction reflects an effective royalty reduction of 0,2 percent (from five percent to 4, 8 percent) which can be applied across all producers, which is equivalent to the revenue loss to Government due to the royalty reduction. This framework guarantees that the revenue loss to Government due to royalty reduction remains the same and that the reduction provides an incentive to mining houses which have capacity to improve production. The framework will also enable that the viability of struggling operators will improve.”
