In the 2025 National Budget, the Zimbabwean government introduced a series of new tax measures and royalty changes that will significantly affect the mining sector.
By Ryan Chigoche
These measures, effective January 1, 2025, reflect the government’s commitment to increasing revenue, ensuring tax compliance, and promoting economic diversification through local beneficiation. However, while the focus on strengthening the mining industry is evident, these new policies also present challenges for industry players, who must navigate and comply with the updated tax framework.
The potential impact on the sector’s profitability is a central concern. In both the short and long term, these changes could place additional financial pressure on mining companies. As the industry adapts to the new fiscal landscape, this article examines the key tax provisions in the 2025 Budget and the Finance Act, alongside their likely implications for Zimbabwe’s mining industry.
A report by the Chamber of Mines, titled Mining Industry Prospects for 2025, released in the last quarter of 2024, highlighted growing pessimism among miners regarding their businesses’ profitability heading into 2025. With high operating costs and weak commodity price prospects, the outlook appeared bleak. Furthermore, industry executives voiced concerns about an increasingly unfavorable investment climate, compounded by an anticipated continuation of a challenging fiscal framework and policy environment.
The multiplicity of taxes, elevated royalty rates, and the introduction of new beneficiation and special capital gains taxes were all cited as significant obstacles to growth. To make matters more complex, the prolonged uncertainty surrounding the finalization of the Mines and Minerals Act and other legislative matters further deepened the sector’s unease. Below, we examine the key tax and royalty changes miners will face in 2025.
Key Changes in Tax and Royalty Measures
1. Mineral Royalties Collection and Penalties
Effective January 1, 2025, mining companies will face penalties for the late remittance of royalties, regardless of any pending legal proceedings. This provision aims to enforce timely tax compliance, ensuring the government receives essential revenue from the mining sector. Additionally, royalties are now classified as a tax, aligning with international standards. The Commissioner may exempt taxpayers from penalties if non-compliance is not deliberate, a provision not previously available for royalty-related issues.
2. Changes in Royalty Rates
- Coal: The royalty rate increased from 1% to 2%, reflecting the growing demand for this energy resource.
- Black Granite: The royalty rate remains unchanged at 2%, maintaining its significance in Zimbabwe’s export portfolio.
- Other Dimensional Stones: The royalty rate was reduced from 2% to 0.5% to encourage exploration and extraction.
- Quarry Stones: A new royalty rate of 0.5% was introduced, recognizing their value in construction and infrastructure development.
3. Special Capital Gains Tax on Mineral Titles
Effective January 1, 2025, a special capital gains tax will be levied on the transfer of mining titles. This tax applies to all transfers of mining assets after December 31, 2023, whether the transaction occurs inside or outside Zimbabwe. The goal is to capture more value from asset transfers, especially as larger companies acquire smaller ones.
4. New Levy on Key Minerals
A 2% levy will be imposed on the gross value of lithium, black granite, quarry stones, and both uncut and cut diamonds sold locally or exported. This is an increase from the previous 1% and must be paid in the currency of trade. The adjustment aims to boost revenue from Zimbabwe’s high-value minerals, particularly lithium, a critical component in the global electric vehicle supply chain.
5. Restrictions on Mining Title Transfers
From January 2025, mining companies must be registered taxpayers to acquire or transfer mining titles. Transfers without proof of tax registration will be considered void. This regulation seeks to improve tax compliance and discourage informal mining operations.
6. Discontinuation of Tax Relief for Mining Companies
The government announced last year that tax reliefs for mining companies will be phased out, starting in January 2025. This measure aims to incentivize local processing of raw minerals rather than their export in unrefined form. A 5% beneficiation tax has also been introduced on unrefined platinum exports, signalling a strong push toward value addition.
Implications for the Mining Sector’s Profitability
Zimbabwe’s new tax and royalty measures, effective January 2025, will have significant implications for mining sector profitability. The increased royalty rates, particularly for coal, and the 2% levy on key minerals like lithium, black granite, and diamonds, will raise operational costs. This financial burden could compress profit margins, particularly in a volatile global market.
The capital gains tax on mineral title transfers may limit liquidity in the sector. By taxing asset transfers, the government could restrict companies’ ability to adjust portfolios, potentially stifling market responsiveness.
Moreover, the push for local beneficiation will require substantial investment in processing plants. This could strain the cash flow of smaller companies and force them to divert resources from exploration or expansion projects. The discontinuation of tax reliefs further exacerbates financial pressures, limiting opportunities for reinvestment.
While these measures aim to enhance compliance and promote local value addition, they may deter foreign investment. Higher taxes and stricter regulations could make Zimbabwe less attractive compared to other mining jurisdictions. Smaller miners may struggle to meet the new requirements, leading to further consolidation in the sector.
Although beneficiation promises long-term benefits such as job creation and increased export value, it also poses environmental and social risks. Mining processes, particularly beneficiation, can harm the environment, and local communities may experience disruptions during the development of processing plants. The government must ensure that beneficiation does not come at the expense of sustainability or social stability.
In the short term, these measures will likely reduce mining companies’ profitability. However, with proper management, they could lead to a more sustainable and diversified mining industry in the long run. The government must balance revenue generation with maintaining sector competitiveness to ensure that both large and small miners thrive in this evolving fiscal landscape.
