Blow for Miners as Tax Holidays May Soon Be Over

Govt offers tax breaks to companies that invest in local procurement, beneficiation

The mining industry may suffer a major setback as the Treasury considers removing tax incentives for mining companies, asserting that current measures are overly generous given the sector’s profitability.

By Ryan Chigoche

This development comes at a time when mining companies are pessimistic about profitability in 2025, citing an anticipated high-cost structure and weak commodity price outlook. This has led miners to call for a review of the tax environment. Earlier in the year, the Chamber of Mines of Zimbabwe sought temporary tax relief and lower electricity tariffs due to declining global prices impacting the sector, particularly for lithium and Platinum Group Metals (PGM) producers.

The government’s decision follows pressure from civil society organizations, which have long argued that tax incentives primarily benefit mining companies at the expense of the communities where they extract resources. Over the years, the government has offered these incentives to attract foreign investment in the mining sector. However, in a recent interview at the Employers’ Confederation of Zimbabwe annual congress, Deputy Minister of Finance David Mnangagwa confirmed that the government is reassessing these incentives, noting that current tax holidays are overly generous as mining companies are excessively profitable.

According to the recent Chamber of Mines Zimbabwe State of Mining Industry Survey Report, miners have urged the government to review the tax regime, expressing concern over high royalties for platinum and diamonds, as well as export taxes on PGMs and lithium concentrates, which they claim increase production costs and impact project viability. Over 90% of industry executives reported that miners are currently overtaxed, with the effective tax rate for the industry at 69%, the highest in the region. The survey indicated that this level of taxation is unsustainable, diverting capital intended for reinvestment in new projects.

The report also anticipated this policy shift, as mining executives expressed concerns that the fiscal framework will worsen in 2025, predicting further profit declines.

“Ninety percent of mining executives indicated that the fiscal framework for the industry is suboptimal, citing the multiplicity of taxes, high royalties, beneficiation taxes, retrospective special capital gains tax, and elevated mining fees and levies. They also expect the fiscal framework to worsen in 2025, highlighting increased stakeholder pressure on the perceived contribution of mining to the economy,” the report noted.

See Also
Junior Chamber of Mines of Zimbabwe

With Zimbabwe’s potential as a leading lithium producer and the second-largest platinum producer after South Africa, Mnangagwa stated that despite a recent downturn in platinum and lithium prices, trends show mining companies do not require tax holidays to invest. He acknowledged the need for better revenue distribution from the extractive industry, emphasizing the importance of preparing for economic shifts as platinum resources gradually deplete and the need for foresight in budgeting and developing subsidiary industries.

In Zimbabwe, many mining companies benefit from these substantial tax incentives, which can significantly enhance their profitability. However, this often leaves local communities with little to show for the resources extracted from their lands. While miners enjoy lower taxes, the funds available for public services and infrastructure in these areas are reduced, leading to underinvestment in essential services like healthcare and education. Consequently, there is a growing call for a fairer distribution of mining revenues to ensure that communities benefit from the resources extracted from their regions.

Despite the mining industry’s crucial role in the economy, the sector is projected to see mineral revenue rise by about 2% in 2024 and by 10% to reach $6 billion by 2025, driven by increased output and recovering commodity prices.

Scroll To Top
error: Content is protected !!