Prepared by: ENM Advisory Group
Executive Summary
The mining industry, which accounts for about 12% of Zimbabwe’s GDP, is currently mired in a protracted administrative stalemate with far-reaching consequences. This is resulting from fundamental differences between two competing methods for valuing mineral royalties: the “gross fair market value” approach, which is enforced by the Zimbabwe Revenue Authority (ZIMRA), and the “ex-production price” model, which is applied by the Minerals Marketing Corporation of Zimbabwe (MMCZ).
Recent major verdicts in Afrochine Smelting v. ZIMRA, (2023) and ZIMRA v. Murowa Diamonds, (2024) have significantly confirmed ZIMRA’s position on royalty valuation. Nonetheless, these verdicts have raised more serious legal and structural concerns. Institutional misalignments, perceived contractual uncertainty, and statutory inconsistencies all require a rapid government response.
This Policy Brief seeks to:
- Analyse the fundamental consequences of the current discord in mineral royalty valuation
- Evaluate its legal and economic ramifications; and
- Present a clear and feasible reform strategy
- Valuation of Royalties
- MMCZ Framework: The “Ex-Production” Framework
MMCZ valuation is based on MMCZ Act Section 3(1)(e) [Chapter 21:06], which requires the corporation to determine mineral value at the “point of extraction” (also known as mine-gate price). With this approach, expenses, including marketing, insurance, and transportation that come after extraction, are specifically not included in royalty estimates. By acknowledging and preserving contractually agreed pricing structures, Section 243 of the Mines and Minerals Act [Chapter 21:05] further strengthens this model. The application of mine-gate valuations in legacy agreements was upheld by the court in Zimbabwe Platinum Mines (Pvt) Ltd v ZIMRA (2015), confirming their contractual sanctity and indicating regulatory stability for current operators. This decision provided early judicial support for the legality of this approach.
- ZIMRA Model: The “Gross Sales” Standard
In contrast, ZIMRA bases its royalty calculation on “gross fair market value,” which is required by Section 37B(c) of the Finance Act [Chapter 23:04]. This approach is in line with the Mines and Minerals Act’s Section 251(2), which states that royalties are calculated as a percentage of “proceeds received.” The fundamental distinction is that all post-extraction expenses are included to maximise economic value at the point of sale.
ZIMRA’s interpretation is reinforced by Section 34 of the Revenue Authority Act [Chapter 23:11], which penalises under-declaration of revenue, and Statutory Instrument 26/2025 (Royalty Compliance Regulations), which empowers the authority to reassess revenue due retroactively. This demonstrates a clear legislative and regulatory intent to increase the royalty base and enjoy the full financial benefits of Zimbabwe’s mineral riches sale.
- Statutory Contradictions and Overlaps – The Fuel for Litigation
- The development of the prevalent valuation disputes can be traced back to seemingly incompatible mandates incorporated in several pieces of legislation. Three important statutes contribute to this interpretation divergence, as they lack a clear hierarchy and harmonised definitions.
The Mines and Minerals Act (MMA) [Chapter 21:05]: Section 244(1) charges royalties on minerals “won and disposed of,” but lacks a clear explanation of the value base, leaving space for interpretation. Section 243 muddles challenges by appearing to accord primacy to pricing systems. - According to Sections 245(1) and Schedule VII of the Finance Act [Chapter 23:04], royalties are calculated as a percentage of “gross fair market value.” Critically, Section 37(9) expressly prohibits deductions for processing or transportation costs, which directly contradicts the typical MMCZ ‘ex-production’ approach.
- The MMCZ Act [Chapter 21:06] regulates mineral marketing and requires the corporation to value minerals “at the point of extraction,” but lacks integration with fiscal regulations, resulting in an operational and legal silo.
In the lack of a clear legal primacy clause or unambiguously harmonised meanings throughout these core acts, litigation has unfortunately become the primary, and often the only, avenue for resolving these essential tax disputes. This method is essentially unsustainable and contributes to increased jurisdictional risk. The lack of a defined hierarchy or a single, harmonised interpretation of definitions (e.g., what exactly constitutes ‘mineral revenue’ for various levies, or the exact extent of ‘beneficiation’ incentives) keeps both miners and authorities in a continual state of crippling ambiguity. - This prevailing ambiguity spurs judicial disputes. In lieu of relying on clear legal principles or a streamlined administrative dispute resolution process, parties are driven into a hostile, adversarial environment, embarking on or appealing to seek clarity or impose a certain interpretation. This not only puts a strain on the already overburdened justice system, but it also rapidly renders the broader mining sector increasingly litigious. Investors, both domestic and foreign, are deterred by the prospect of incurring exorbitant, unpredictable legal costs, facing protracted court battles, and operating in a volatile regulatory environment where the ‘rules of the game’ are constantly being redefined through competitive legal pronouncements in lieu of clear, consistent policy.
3. Judicial Interpretation: Precedential Risks
The judicial landscape exacerbates an already complex legal terrain, with recent Supreme and High Court decisions offering clarity in one aspect but bringing new forms of doubt in another.
In Afrochine Smelting (Pvt) Ltd v ZIMRA (2023), a shift in principle by the Supreme Court ruling was a substantial divergence from the prior Zimplats standard procedure. The court determined that “gross fair market value” refers to the arm’s-length transaction price realised at the ultimate point of sale. Importantly, it virtually eliminated the deductibility of post-extraction expenses, including transportation and insurance.
From a legal and statutory basis, this decision looks well-reasoned and consistent with a global trend towards strong transfer price enforcement. By adopting valuation based on final sale prices and expressly following OECD arm’s length criteria, the Supreme Court supported ZIMRA’s view that taxes should be assessed on the true economic value of mineral sales rather than potentially understated pricing. The rejection of the MMCZ’s price standard may derive from the judiciary’s conclusion that fiscal legislation transcends, or at least provides a different foundation for, valuation than marketing regulations, especially if transfer pricing issues are paramount. This judicial approach aligns Zimbabwe’s tax administration with international best practices for reducing illicit financial flows and guaranteeing equitable taxation of resource wealth.
- ZIMRA vs Murowa Diamonds (2024): Reinforcing the Trajectory
The subsequent High Court ruling in ZIMRA versus Murowa Diamonds (2024) confirmed this trajectory by connecting royalties to the entire operating income produced from mining sales, therefore upholding the gross sales strategy. These recent judicial declarations substantially support ZIMRA’s interpretation, emphasising the notion that royalties should represent the actual revenue generated by natural resources.
In the landmark decision of ZIMASCO (Private) Limited v. Commissioner General of the Zimbabwe Revenue Authority (2024), the court asserted that it was both incorrect and illegal to subtract distribution or auxiliary charges from the gross selling price under the current tax regime. The judgment highlights the ongoing complexities surrounding the interpretation and implementation of tax legislation in the extractive industry, highlighting the importance of specific legislative definitions under mining law.
- Unfairness and retrogressive effects
In this, the industry follows the implicit, and often explicit, guidance of MMCZ’s pricing processes. To retroactively invalidate this criterion for tax purposes without clear prior statutory modification or unequivocal instruction creates a situation in which past transactions performed in good faith are vulnerable to reassessment. This violates the principle of justifiable expectation and subjects miners to devastating, unexpected tax liabilities. The retrogressive effect is possibly the most harmful feature, as the application of these new rules essentially retrospectively enforces a tax standard that was not explicitly obvious or legally prevailing at the time numerous transactions happened. This uncertainty stifles financial planning, hinders new investment, and erodes the sense of a stable regulatory climate.
While these rulings provide some clarity to ZIMRA’s interpretation, their execution, particularly the retroactive application and implied dependence of previous industry practices and contracts, raises serious concerns about contractual fairness and legal predictability.
- Institutional Fragmentation: The Compliance Quagmire
The current valuation discord is compounded by profound institutional fragmentation, particularly the responsibilities and mandates of ZIMRA (tax enforcement) and MMCZ (mineral marketing). The overlapping jurisdictions and varying interpretations result in duplicate regulatory obligations and frequently contradicting valuation benchmarks. Mining businesses are required to use a costly and ineffective dual reporting system, with an ex-production price for MMCZ and a gross sales value for ZIMRA’s Rev 5C reports.
This dearth of coordination has perpetuated losses while establishing a fragmented, unpredictable compliance environment. This raises investor concerns and increases the complexity and risk of doing business for various institutional purposes, without a harmonised royalty framework, unintentionally adding to the overall operational friction.
- Operational and Investment Risks – The Economic Toll
The evolved and growing royalty valuation method creates numerous concerns that directly undermine the profitability of current operations and future investment in Zimbabwe’s mining sector. The retroactive implementation of SI 26/2025, along with judicial reinterpretations of past transactions, exposes the mining sector to potentially catastrophic backdated obligations. This disrupts financial planning and operations. Investors are inherently apprehensive of nations whose revenue collection regulations might be changed retroactively, creating an unstable environment. Overlapping national and subnational claims, compounded by a lack of precise definitions, may result in double taxes or revenue distribution conflicts, complicating compliance even further.
6. Comparative Lessons from Africa: Blueprints for Reform
Examining the experiences of other African countries yields excellent blueprints for comprehensive and effective mining royalty reform. Ghana and Botswana have successfully adopted valuation regulations and inter-agency revenue task forces, displaying the combination of administrative simplicity, legal clarity, and excellent cooperation. Ghana’s framework, for example, explicitly outlines deduction allowances and valuation points, whereas Botswana’s diamond sector employs robust benefit-sharing structures based on transparent valuation.
Successful regimes prioritise specific legal definitions, streamline interagency processes, and involve industry stakeholders in policy development to assure predictability and fairness. Zimbabwe may use comparable techniques to considerably eliminate legal ambiguity, increase fiscal accountability, and boost investor confidence.
- Reform Pathways – Charting a Path to Harmonisation
To negotiate this complicated legal terrain and promote a stable, predictable, and ultimately productive mining environment, decisive action is required at legislative, policy, and judicial levels.
- Legislative Harmonisation: The Foundational Pillar
- Amend Finance Act (Section 37B(c)
The Finance Act should be modified to clearly define “gross fair market value by considering adopting a clear definition that follows international best practices, such as arm’s length principle as well as providing a definition that includes both ex-production and gross sales methodologies for specific mineral categories, considering the mineral’s nature, degree of beneficiation, and mining operation structure.
- Align the MMCZ Act and MMA with the Fiscal Provisions
A reconciliation of Section 3(1)(e) of the MMCZ Act with Section 251(2) of the Mines and Minerals Act is paramount to address the current statutory uncertainty. This might require expressly stating that one valuation technique takes precedence over another, or defining clear, verifiable standards for their implementation, possibly through amendments to the Mines and Minerals Act, the primary statute governing the mining sector.
- Institutional Coordination: Bridging the Divide
- Establish a Permanent Joint Taskforce
Create a permanent MMCZ–ZIMRA–Ministry of Finance task force, with clear terms of reference and a mandate to:
- Draft unified, binding royalty valuation guidelines.
- Ensure a consistent and transparent approach to valuation and collection across all agencies.
- Develop these guidelines in active consultation with industry stakeholders to foster buy-in and practical applicability.
- Grandfathering Legacy Agreements: To mitigate the significant risks associated with retroactive liabilities while upholding the principle of legitimate expectations, the government should consider legally grandfathering existing mining agreements that explicitly specify ex-production pricing for a defined transition period.
- Judicial and Constitutional Clarification: Seeking Definitive Pronouncement
Refer significant issues of statutory validity to the Constitutional Court. A clear statement on whether the Finance Act, as fiscal legislation, or the Mines and Minerals Act, as sector-specific law, takes precedence in matters related to royalty valuation would give much-needed legal certainty and authoritatively contribute to future legislative and regulatory proceedings.
When interpreting contractual agreements, courts should apply established private law principles, such as “substance over form,” to achieve equitable results without jeopardising the state’s fiscal interests.
- Fiscal Design Integration: Towards a Holistic Approach
- Clarify royalty deductions under the Income Tax Act to prevent double taxation and unforeseen tax burdens. Redefining “mining” in fiscal legislation to include the entire value chain from extraction to sale, connecting it with the economic realities of mineral value generation, is crucial. This would rationalise the royalty base and advance beneficiation goals.
Conclusion
The Afrochine Smelting and Murowa Diamonds case has conclusively exposed not just a significant conflict in mineral royalty assessment techniques, but also a broader, more systemic gap of institutional and legal coherence in Zimbabwe’s mining sector. The persistent legal ambiguity and fragmentation pose a fundamental risk to the sector’s growth and ability to contribute effectively to national development.
Policy makers must now undertake deliberate, coordinated, and comprehensive law reforms to integrate its mineral taxation framework. This necessitates not only legislative changes but a comprehensive approach that promotes institutional coordination, seeks decisive judicial clarification, and incorporates smart fiscal planning. This would significantly increase fiscal accountability, administrative efficiency, and, most importantly, boost investor confidence in one of the country’s most critical economic sectors. A stable and integrated legislative framework for mining royalties is not only desirable but also necessary for harnessing Zimbabwe’s immense mineral potential and guaranteeing fiscal compliance.
Contact
Maposa Edwell – LLB LLM Doctoral Researcher LLD (Laws)
Legal Advisor/ Law Lecturer / Mining, Minerals Law / Extractives International Laws and best practices / Environmental Law / Sustainability ESG, Social Justice / Responsible Mining / Cybersecurity / Board Member
Phone: +263772568018 +27835669623
