Zimasco Wins US$10 Million Legal Battle Against Zimra
In a landmark ruling, Zimasco has emerged victorious in a legal battle against the Zimbabwe Revenue Authority (Zimra), securing a judgment that absolves the company from paying US$10 million in royalties. This decision follows an extensive examination of Zimasco’s tax affairs, particularly concerning the calculation of royalties from 2019 to 2022.
By Ryan Chigoche
The dispute began when Zimra claimed that Zimasco had miscalculated royalties by basing its calculations on an ex-works value that excluded distribution costs. This review was formally communicated in a letter dated December 8, 2022, focusing on the period from January 1, 2019, to September 30, 2022. In response, the High Court ruled in favour of Zimasco, granting the application with costs and marking a significant win for the company.
The court’s ruling included several key orders. It declared that chrome ore concentrates and ferrochrome are classified as mineral-bearing products, meaning that no mining royalties were payable on their disposal during the specified period. Additionally, the court set aside Zimra’s claims issued on March 24, 2023, which sought to recover ZWL881,544,511.00 and USD10,523,347.00 in alleged shortfalls of mining royalties. Furthermore, Zimra was ordered to refund ZWL389,606,502.95 and USD2,485,183.83, along with any additional amounts previously paid by Zimasco regarding these disputed royalties.
Zimasco argued that no royalties applied to mineral-bearing products before the Finance Act 7 of 2021, emphasizing that the legislation did not impose such obligations until it was amended. They contended that chromite ore concentrates and ferrochrome should be classified as mineral-bearing products, which are not subject to royalties. The company highlighted the legislative distinctions between raw minerals and processed products, reinforcing their position. Citing recent developments regarding platinum group metals, Zimasco asserted that there were no defined royalty rates for mineral-bearing products before January 1, 2022. They maintained that this legislative gap supported their claim that royalties were not due during the disputed period. Furthermore, Zimasco emphasized the need for a reasonable interpretation of tax laws, arguing that imposing royalties retroactively would create uncertainty and undermine investor confidence in the mining sector.
In contrast, Zimra contended that royalties should be calculated based on the market value of the minerals sold. They argued that Zimasco’s method of calculating royalties was flawed, as it involved deducting distribution and other costs from the gross selling price, a practice Zimra asserted was not permissible under the existing tax framework. Zimra maintained that ferrochrome is a mineral-bearing product and thus liable for royalties under the applicable laws. They argued that regardless of how Zimasco categorized its products, the regulatory framework clearly stipulated that royalties apply to all mineral-bearing outputs. Zimra also emphasized the importance of protecting public revenue interests, suggesting that allowing Zimasco to evade royalties would set a troubling precedent for the mining industry, undermining the revenue base necessary for national development.
In analyzing the arguments presented, the Honourable Justice Musithu reinforced the distinction between minerals and mineral-bearing products, asserting that the legislative framework supported Zimasco’s interpretation. The ruling emphasized the importance of clear definitions within tax law, concluding that the current legal framework did not impose royalty obligations on mineral-bearing products prior to the specified date. Additionally, the judge considered the intent of the Finance Act, concluding that the absence of specific royalty rates for mineral-bearing products before 2021 bolstered Zimasco’s claims. The ruling noted that legislative changes often require clarity to avoid ambiguity in tax obligations. This case sets a significant precedent for future disputes regarding the calculation of mining royalties in Zimbabwe.
Zimasco’s victory not only alleviates a substantial financial burden but also clarifies the legislative framework surrounding the calculation of mining royalties in Zimbabwe. The court’s ruling reinforces the ongoing complexities in the interpretation of tax laws within the mining sector, emphasizing the importance of clear definitions and compliance in royalty calculations. This case serves as a critical reference point for similar disputes, highlighting the need for miners and tax authorities to navigate these issues with greater clarity and adherence to the law. The ruling ultimately underscores the necessity of stability and predictability in the interpretation of tax laws, which are crucial for attracting foreign investment in Zimbabwe’s mining industry.