Miners cautioned over tax holidays

The extractive industry is one of strategically key sectors of Zimbabwe’s economy and is expected to play a major role in driving the country towards an upper middle-income society status by 2030

MINING companies should desist from seeking tax holidays from the Government while they do not want to pay tax during the course of their operations, a senior Government official has said.

The extractive industry is one of strategically key sectors of Zimbabwe’s economy and is expected to play a major role in driving the country towards an upper middle-income society status by 2030.

And to set this transformative agenda, the Government in 2019 launched the US$12 billion mining strategy to be achieved by next year.

When the Government launched the US$12 billion mining strategic roadmap, Zimbabwe’s minerals’ contribution to the economy was US$2,7 billion, but the figure rose to US$5,3 billion last year.

The mining sector is expected to generate US$8 billion this year.

Speaking at the just-ended Zimbabwe Economic Development Conference in Victoria Falls last Friday, secretary for Finance and Economic Development Mr George Guvamatanga said fiscal and tax policy remain critical in promoting sustainable macro-economic growth targets.

“Stakeholders also agreed that fiscal and tax policy remain critical in promoting sustainable economic growth as well as attaining the desired growth rate and provision of key and transformative public infrastructure and improved service delivery.

“We have mining companies that will come and do exploration, they start mining and they don’t want to pay tax for 10 years, they want a tax concession for 10 years,” he said.

The three-day conference was held under the theme, “Accelerating Economic Transformation through evidence-based policy making”.

The convention, among others, discussed monetary and exchange rate policy, industrialisation and trade policy, informal sector development and poverty reduction, fiscal policy reforms and public and private investment and creation of an enabling environment for business.

Guvamatanga said one of the key takeaways was the need to review the tax regime in the extractive sector as well as comprehensive look at the general tax rate expenditure structure to satiate the value for money.

In the 2022 mid-term budget review statement presented last month, Finance and Economic Development Minister Professor Mthuli said mindful of the fact that the tax regime was the main instrument for sharing benefits from finite minerals and also provides an important source of Government revenue, it was necessary to maximise revenue to the fiscus.

In this context, he proposed a royalty rate of 5 percent with effect from January 1, 2023 and this is in line with other platinum-producing countries in Africa.

In 2021, despite the significant contribution to output and export receipts, the mining sector contributed about 1,2 percent to the country’s Gross Domestic Product through direct taxes to the fiscus.

This was a significant contrast to countries in sub-Saharan Africa which averaged 2 percent during the same period.

“Low fiscal receipts are attributed in part to a generous royalty regime on some major minerals. A case in point is the royalty rate on platinum, which was reduced from 10 percent in 2015 to 2,5 percent in conformity with a court judgement.

“The reduced rate was subsequently aligned across all platinum producers. Compared to revenues accruing from mining activities and rates charged on other precious minerals and metals such as gold, the royalty rate on platinum is sub-optimum.

“For example, royalty rates on gold range from 3 to 5 percent, depending on the international commodity price,” said Ncube.

On monetary and exchange rate policy, Guvamatanga said there was general consensus that macro-economic instability did not support sustained economic growth hence the need for collaborative efforts between Government and the private sector in finding lasting solutions to address exchange rate instability and inflation.

He said it was important to highlight that the panacea to curbing inflation revolved around ensuring exchange rate stability through controlling money supply growth.

“Monetary experts implore the Government to urgently interrogate the major sources of the money supply growth in order to curb inflation.

“We have already started implementing some of the measures meant to curb inflation. It has come to our realisation that the pricing models in the economy have actually created some of the inflation and some of the pricing models have unfortunately been supported by procurement by Government ministries, departments and agencies. Various measures have already been implemented to address this matter,” said Guvamatanga.

“But while we are addressing it, I would want to make a few examples, some of the delegates who actually left Harare on Monday because we were on holiday to come here, paid $700 000 for a ticket from Harare to Victoria Falls.

“I have done some mathematics that US$1 500 per ticket from Harare to Victoria Falls, that’s not acceptable and that was the last time that will ever happen.

“There is no way a one-hour flight can cost US$1,500, so if you work that exchange rate backwards, it gives you a rate of US$1: $1,350 that was the exchange rate that was used.”

As Zimbabwe benefits from the expanded export market, Guvamatanga said it was also imperative for local businesses to migrate from uncompetitive production methods, adopt technologies and invest in sophisticated machinery to meet demand from markets outside Sadc and Comesa (Common Market for Eastern and Southern Africa).

One such market, which offers a huge market share for Zimbabwean products is the African Continental Free Trade Area (AfCFTA) that was operationalised on January 1, 2021.

In this regard, AfCFTA brings together all the 55 African Union member States covering a market of more than 1,2 billion people, including a growing middle class, and a combined GDP of more than US$3,4 trillion.

The AfCFTA is a continent-wide agreement that is targeted at transforming Africa’s economy by dismantling trade barriers among countries in the continent as well as deepening integration through improved infrastructure development, investment inflows and enhanced competition as well as progressively eliminating tariffs on intra-African trade.-ebusinessweekly