Mining Industry Urges Tax Reductions, Lowering of Power Costs in Anticipation of Mid-Term Budget
The mining industry is advocating for substantial tax cuts and a reduction in power tariffs to maintain operations and support growth as Finance Minister Mthuli Ncube prepares his upcoming mid-term budget statement.
The mining sector is pushing for significant reforms in government policies to address the economic strain caused by low metal prices.
Revising the Capital Gains Tax
The capital gains tax on the transfer of mining titles, introduced in the 2024 budget, has been a major concern for the mining community. This tax, which imposes a 20% charge on sales of mining projects to foreign investors and is backdated by ten years, has created uncertainty and discouraged investment. The Chamber of Mines is calling for this tax to be reduced to 5% and not applied retroactively, to stabilize the investment climate.
Significant increases in royalties have also placed a heavy burden on miners. Last year, the government increased platinum royalties from 2.5% to 7%, significantly raising costs at a time when metal prices are low. The mining sector suggests a sliding scale for royalties based on metal prices: 3% when platinum prices are under US$1,100 per ounce and 5% when they are above this threshold. Additionally, they propose lowering diamond royalties from 10% to 7% and reducing lithium royalties from 5% to 3% to support the emerging lithium industry.
Removing the Tax on Unrefined Platinum
The 5% tax on platinum exports, intended to incentivize local refining, has been counterproductive, according to the Chamber of Mines. They argue that this tax should be eliminated as the industry has already committed to building a joint refinery. The existing tax has led to delays in projects, such as the Zimplats base metal refinery, which was postponed due to falling prices.
Current regulations require miners to retain only 75% of their earnings in USD, with the remaining 25% converted to local currency. This policy has drastically reduced the foreign exchange available for mining operations, dropping from US$1.7 billion in 2022 to US$1 billion in 2024. The Chamber of Mines recommends that the government collect more taxes in Zimbabwean dollars (ZiG) to ease the forex burden on miners, thereby supporting operational and expansion needs.
Reducing Electricity Tariffs
The cost of electricity is another critical issue, with miners currently paying USc14.21 per kWh. The sector argues that this rate is unsustainable and proposes lowering the tariff to USc10 per kWh. The Chamber of Mines warns that if power costs remain high, platinum group metals (PGMs) producers may be forced to reduce smelting activities, jeopardizing the industry’s future.