Zimbabwe Mines amendment bill to curb leakages but powers given to President must be struck off

Room for flexibility?

Another highlight of the MMAB is that the royalties must be fixed annually in each fiscal year by the Finance Act, in cognizance of the recommendations of the Minister of Mines among others. The predictability of tax regimes is a key factor to attract mining investments. Investors consider unstable tax regimes a huge investment risk. In the past, we have seen the government changing frequently the royalty rates for gold and platinum to make them more fashionable in response to changes in the market.

Worried by the unstable royalty regime, the government introduced a flexible gold royalty rate dependent on the international market price in 2019. A similar argument can be used to

predetermine the royalty rates for other minerals like platinum and lithium, for example, in line with the changes in international markets. This also manages the risk that fixed royalty rates sterilize mineral resources as miners target high-grade ores. If the market price of a given mineral falls, the royalty rate accordingly falls, and the opposite is true.

South Africa uses the income-based approach to royalties which is an ideal situation for investors. However, faced with a degraded quality of public services, Zimbabwe must get revenue as miners tied to the marketing of minerals. Royalties cannot be deferred until mining companies start to make profits. Imagine the likely public fallout if the government fails to show in its coffers improved revenue from one of the world’s most sought-after minerals, lithium.

The MMAB is more intentional on the empowering of ZIMRA “to inspect all books and records, reports and other documents relating to the acquisition, disposal or removal of any mineral or mineral-bearing product as may be needed for the purpose authenticating any return, details, solemn declaration, certificate or document rendered in connection with the payment of royalties.”

Further, in the event of a company defaulting in paying royalties or submission of royalty returns, ZIMRA is empowered to prevent the sale of minerals unless an agreed payment arrangement has been put in place.

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