Mining sector incentives to promote new investment
Tax incentives, which the government extended to the mining sector are meant to attract new investment while ensuring maximum utilisation of the country’s mineral resources to achieve a US$12 billion mining industry by 2023, a Cabinet Minister has said.
Gold production of 100 tonnes and earnings of US$4 billion per annum as well as production growth across other high value minerals such as platinum, diamonds, lithium and chrome, will anchor the attainment of the US$12 billion milestone.
Finance and Economic Development Minister Mthuli Ncube said tax incentives that the mining sector enjoyed were not because it was being favoured.
In his 2020 National Budget, Prof Ncube announced a cocktail of new and extension of existing, duty free and tax rebates across many sectors to drive economic recovery.
Specifically for the mining sector, Prof Ncube allowed mining houses to bring in “tangibles and intangibles around computer software as tax-deductible items” and reviewed downwards the royalty on diamonds from 15 percent to 10 percent.
This was on top of other already existing tax incentives being applied to the mining sector.
“Chair, we are not being soft on the mining sector or favouring it. You know, we are trying to promote investment in the sector and incentivise the sector. We are trying to grow our export earnings in the sector (so) really we do not want the tax to be an impediment towards that kind of investment,” he told Parliament.
“We want to make sure that investment flows in. It is our desire that we have an investment of US$500 million equivalent between now and the year 2023 in the lithium sector for example. We believe that through these tax incentives in the form of a tax exemption is one way to attract investment.”
Ncube said the government would not hesitate to pass on incentives because this would in turn assist in creating jobs and drive foreign currency earnings. “We have been very clear that the mining sector is a key sector and I think that we all agree that Zimbabwe has so many minerals and we desire to have those minerals exploited to the benefit of Zimbabweans but the investors also want to earn a fair return and why not?,” he asked.
“That the mining sector is not paying enough taxes — again you know we benefit a lot from foreign direct investment from the jobs that the mining sector creates. We benefit a lot from the exports and forex that the mining sector generates. The mining sector is the largest generator of foreign currency into Zimbabwe, showing we ought to recognise that this is an important sector for driving our exports.”
The country’s mining representative body, Chamber of Mines of Zimbabwe has since welcomed Government incentives to the sector.
Zimbabwe is facing an acute foreign currency challenge and many companies have been sourcing the money on the unofficial market, pushing the prices of other consumables northwards.
Some of the Fiscal incentives for the Mining sector according to the Ministry of Mines and Mining Development website
Income Tax
Taxable Income of a Holder of Special Mining Lease
l A holder of a special mining lease, corporate income is taxed at a special rate of 15% instead of the general tax rate of 25%.
l However, holders of a Special Mining Lease are liable to Additional Profits Tax (APT). The tax is payable upon attaining a formula based level of profitability.
Exemption from Certain Taxes
l After consultation with the Minister responsible for the administration of the Mines and Minerals Act, the Minister of Finance may declare the holder of a Special Mining Lease to be an approved holder of a special mining lease for the purposes of exemption, wholly or partly, from the following taxes:
Non-Residents shareholders tax;
Non-Residents tax on Fees;
Non-Residents tax on Remittances;
Non-Residents tax on Royalties
Allowable Deductions/ Expenditure
Deductions on all capital expenditure on exploration, development, and operations incurred wholly and exclusively for any mining operations are allowed in full.
Expenditure incurred during a year of assessment on surveys, boreholes, trenches, pits and other prospecting and exploratory works undertaken for the purpose of acquiring rights to mine minerals in Zimbabwe or incurred on a mining location in Zimbabwe, together with any other expenditure that is incidental thereto. The taxpayer may elect to have the expenditure allowed in the year of assessment in which it is incurred or carried forward and allowed against income from mining operations in any subsequent year of assessment.
Assessed Losses
There is no restriction on carry over of tax losses; these can be carried forward for an indefinite period.
Royalty on gold for small scale miners
In order to support this sector, Government levied a lower rate of royalty of 1% on small scale gold producers whose output does not exceed 0.5 kg per month.
Support for small scale miners
The capital-intensive nature of mining activities poses challenges to operations of many small-scale miners. This is notwithstanding that; small-scale mining activities employ many people in the country.
In order to encourage the participation of financial institutions in supporting small scale mining activity, Government has put in place tax incentives for financial institutions who accept geologically surveyed claims as collateral for small scale miners’ borrowing requirements
Customs duty
Rebate of duty on goods for the prospecting and search for mineral deposits-: Rebate of duty is granted on goods which are imported by a person who has entered into a contract with the Government for the prospecting and search for mineral deposits.
Rebate of duty on goods imported in terms of an agreement entered into pursuant to a special mining lease: Rebate of duty is granted on goods which the Secretary for Mines certifies as eligible for a rebate of duty in terms of an agreement in the special mining lease.
Suspension of duty on goods imported for specific mine development operations: Customs duty suspension is granted to a holder of a mining location importing specified goods during the project’s life cycle for mining development operations such as sinking shafts, installation of machinery, construction and erection of facilities for the production and conveyance of minerals.
Deferment of Value Added Tax: VAT deferment is granted to mining companies on capital equipment imported for a period of ninety days subject to the conditions set by ZIMRA Commissioner-General.
Rebate of duty on goods for use in petroleum exploration or production: Rebate of duty is granted to the grantee of a special grant issued under the Mines and Minerals Act authorizing the exploration or production of petroleum.—
Business Weekly/New Ziana