Afrochine loses US$3m royalties case

The Supreme Court has dismissed an appeal by Afrochine Smelting (Private) Limited, affirming the Zimbabwe Revenue Authority’s (ZIMRA) assessment of royalties amounting to over US$3 million and nearly ZiG$98 million owed from ferrochrome sales.

Afrochine had challenged the High Court’s earlier ruling, which upheld ZIMRA’s determination that royalties should be calculated on the gross fair market value of the mineral without deductions for freight costs. The company was also contesting a 200 percent penalty for the under-declaration of royalties.

Delivering the judgment, Justice Susan Mavangira ruled that Afrochine had failed to demonstrate any error in the High Court’s decision.

The ruling is a significant financial blow for Afrochine, a large-scale producer of ferrochrome in the country.

The company will now have to settle the outstanding royalties based on the higher market value, along with hefty penalties imposed by ZIMRA.

It is now liable to pay to ZIMRA the principal amount of US$880 361.54, a penalty of U $1 760,723.09, and interest of US$227 772.24.

The local currency debt due to the Reserve Bank of Zimbabwe’s retention policy in apportioning royalties on minerals in local currency is ZiG97,68 million.

This amount includes a principal of ZiG22 507 851.49, penalty of ZiG45 015,702.97 (charged at 200pc, and interest of ZiG30 154,75 million.

Central to the dispute was the interpretation of the term “gross fair market value,” which determines the base for calculating mining royalties under the Finance Act.

Justice Mavangira stated: “The term ‘gross fair market value’ clearly shows that no deductions are to be made to the fair market value.

“In calculating the gross fair market value of a mineral, no deduction shall be made of beneficiation, processing, or other costs whatsoever incurred in the production of the mineral concerned.”

The court heard that Afrochine sold ferrochrome to XHF Hong Kong at an “ex-works” price of $0,60 per pound, which was $0,10 below the international market benchmark of US$0,70 per pound set by Fastmarkets Ferro-Alloys.

Afrochine argued that the sale took place in Zimbabwe, and the ex-works price represented the correct value for calculating royalties.

ZIMRA, however, contended that the deduction of US$0,10 for freight costs was unlawful and that royalties must be based on the international market benchmark, which reflects the gross fair market value of the mineral. The court upheld ZIMRA’s position, finding that the US$0,10 deduction constituted a violation of the law.

“The sale of the product at US$0,60 was below the gross fair market value. The legislature’s intention is to levy royalties on a standard benchmark, not on ex-works prices, which would result in different levels for different miners,” said Justice Mavangira.

Afrochine also challenged the penalty imposed by ZIMRA, arguing that the Finance Act’s reference to “double the amount of royalties payable” did not mean a 200 percent penalty.

But Justice Mavangira dismissed this argument, noting that the penalty provision is clear and lawful. She stated: “As soon as it comes to the notice of the Commissioner that any person responsible for remitting royalties has failed to do so, the Commissioner shall serve notice to pay double the amount of the royalties payable.

This primary penalty is a standalone debt recoverable by the Zimbabwe Revenue Authority.”

Afrochine further argued that ZIMRA had no right to revise its royalty calculations without first obtaining a court order.

The court rejected this contention, emphasising that ZIMRA’s powers to assess and collect royalties were clearly outlined in the Finance Act.

Justice Mavangira explained: “The respondent has powers to collect royalties due in terms of the Finance Act. The argument that a court order is required before enforcing collection is without merit.”

The appeal was dismissed in its entirety, with the court awarding costs against Afrochine. Justice Mavangira concluded: “The respondent has been made to incur costs to defend a lawful decision. This is a proper matter for the exercise of the court’s discretion in the respondent’s favour.”

Justices Bhunu and Mwayera concurred with the judgment, which reaffirms the legal framework governing the calculation and collection of mining royalties in Zimbabwe, ensuring that no deductions are made from the gross fair market value of minerals.

-herald