As Finance Minister Mthuli Ncube prepares his 2024 national budget soon, key industries are sending in their wish lists.
For miners, the collapse in mineral prices around the world and rising costs demand that the government act to support their sector, which is the country’s biggest forex earner. They are recommending a range of changes to taxes and currency regulations to keep them afloat.
In their submission to Ncube, the Chamber of Mines says: “There is need for policy interventions to minimise the adverse impact of subdued prices on the contribution of the mining industry to the economy.”
Here are some of their recommendations.
Cut the royalties
Last year, Ncube increased royalties, saying miners were paying too little tax. But prices for platinum and lithium have fallen, putting pressure on the mines.
Royalty for platinum went up from 2.5% to 7%, and producers say this has increased production costs by 5%. Lithium royalties rose from 2% to 5% and they say this has driven costs up 4%. The miners want royalties cut to 3% for platinum and lithium, which can be reviewed depending on metal prices, as is the case for gold.
Not now: Platinum beneficiation tax
For years, the government has planned to add a 5% tax on platinum concentrates to force producers to build a refinery. After pushing back the tax repeatedly, government plans to effect it in January.
With Zimplats working on its base metal refinery, which will be used by other mines, the Chamber of Mines says the tax is unnecessary and will add to costs. Zimplats plans to complete the refinery by 2025, although it has announced a delay on some projects under its US$1.8 billion expansion plan.
We want more of our money
When a mine exports minerals, it keeps 75% of its earnings as USD and the rest is paid out in Zimdollars. Because of the Zimdollar’s rapid depreciation, miners are losing up to 50% of value on the “surrender” portion. At the same time, suppliers now demand USD dollars. This leaves mines with less money for their operations and capital projects. They are recommending that they be allowed to keep at least 85% in USD.
However, this is unlikely to happen; central bank recently set retention at 75% for all exporters, because it needs the forex to pay for debts and other domestic needs.
Allow us to pay more taxes in ZWL
The Chamber of Mines says since they are forced to sell 25% of their earnings to government for Zimdollars, they must be allowed to use that money to pay for taxes so that they don’t end up more Zimdollars than they know what to do with. That surrender portion must be paid for “at market rates”.
ZESA bills too high
ZESA’s recent tariff increase to USc14.21/kWh has increased costs by an average 10%. Ferrochrome producers, heavy energy users, are feeling the impact the most. Half of their production costs is electricity. Earlier, a separate Chamber of Mines survey found that miners want the power tariff cut to between USc7/kWh and USc10/kWh.
The industry pays ZESA in USD. They say this is unfair, and want their power bills to be aligned with the retention thresholds.
Reward us for installing solar
To ease reliance on unreliable ZESA, many mining companies have installed solar power for their operations. The Chamber says regional peers provide incentives for investing in renewable energy by allowing businesses to reduce their taxable income by 125% of the cost of an investment in renewables. They are recommending that a company that builds a solar plant of at least 5MW be given a capital allowance deduction equal to 125% of the cost of the investment.
Restore special economic zones
Several investors went into Zimbabwe after being granted Special Economic Zone (SEZ) status for their projects. This granted them generous incentives, such as tax holidays and duty-free entry for capital equipment. But government has removed mining from SEZs. The Chamber wants this restored for existing projects.
Says the Chamber: “The removal of SEZ incentives has seen these projects becoming unviable. Without the incentive support, implementation of these projects is expected to significantly slow down.”