Mthuli Ncube's 2% tax threatens mines operations

THE mining sector survey says the 2% transactional tax imposed last month has resulted in price increases across the value chain, which, if not reviewed, would lead to suspension of operations by some mines.

According to the state of the mining industry survey carried out by the Chamber of Mines, all respondents indicated that the 2% tax, which is paid up front, was an additional burden to an industry which was already operating in a punitive fiscal framework.

"The majority of respondents felt that the cumulative impact of tax, (which is levied on transaction across the entire mining value chain and is not based on ability to pay), is more than 30%.The tax has resulted in price increases across the mining value chain. Marginal mines which responded in the survey indicated that if the tax is not reviewed or removed, they would suspend operations," the report read.

The respondents also felt that the tax will discourage ploughing back of profits due to multiple taxing, and would also increase the total capital requirement for similar projects.

"Seventy percent of respondents indicated that royalty levels were high compared to other mining jurisdictions in the region, with diamond at 15% being the highest in the region. The majority of respondents underscored the need to benchmark royalty with regional peers," the report noted.

The Chamber also noted that mining fees and charges were high, adding that government continues to delay the review of mining fees and charges, despite the industry urging such.

"All respondents were of the view that the high fees were weighing down on the viability of the mining sector. All respondents underscored the need to review and streamline mining fees and charges in line with those obtaining in the region, in order to restore viability of the mining sector."

Frequent power outages remained an area of concern and were impacting on operations, resulting in lower output. In times of power outages, respondents indicated that they use diesel-powered generators which are expensive to run.

"All respondents were of the view that the current electricity tariff regime (ranging from 8,6c/ KWh to 12,8c/ KWh) is expensive and increasing the cost of operating mines in Zimbabwe, compared to other mining jurisdictions," the report read.

The survey noted that investment competitive index for 2019 was at -5, indicating that mining executives view the investment environment for 2019 as uncompetitive, a view supported by 80% of respondents.

However, about 51% of respondents expect to record higher profit in 2019, 39% expect marginal growth, with the remaining 13% indicating that profitability was likely to remain stagnant.