How taxation and royalties work in Zimbabwe's mining industry

The mining industry in Zimbabwe is not only rich in mineral resources but also subject to a nuanced taxation and royalty framework. In this article, we delve into the special rules governing taxation and royalties for exploration and mining entities operating within the country's mineral-rich landscapes.

Special Tax Incentives for Miners

Exploration and mining entities in Zimbabwe enjoy a range of tax incentives designed to promote and support the growth of the industry. Here are some key provisions:

• Flat Tax Rate for Special Mining Leases: Holders of special mining leases benefit from a favorable flat tax rate of 15%. This contrasts with the 24.72% rate applicable to other miners. However, special lease holders may also be subject to additional profit tax, calculated using a specified formula.

• Exemptions for Special Lease Holders: Special mining lease holders may find relief from various other taxes, including the Non-Resident Shareholders Tax, Non-Residents Tax on Fees, Non-Residents Tax on Remittance, and Non-Residents Tax on Royalties.

• Government Initiatives: The government of Zimbabwe has recently unveiled additional incentives aimed at fostering the growth of the mining sector, with the ambition to develop it into a USD12 billion industry.
• Deductibility of Capital Expenditure: Mining companies can deduct 100% of capital expenditure incurred exclusively for mining operations.

• Tax Loss Carry-Forward: Mining investors benefit from an indefinite carry-forward of their tax losses, providing a cushion against potential future tax liabilities.

• Borrowing for Working Capital: Investors are permitted to borrow locally for working capital needs. Offshore borrowings, however, require Reserve Bank approval. Interest paid on borrowings within a debt-to-equity ratio of up to three to one is tax-deductible.

• Rebates on Duty: Duty rebates are granted to mining location holders for specified goods imported exclusively for mining development operations. These rebates aim to ease the financial burden on mining projects.

• Rebate on Duty for Capital Goods: Importation of capital goods for mining development operations and during the exploration phase of a mining project is eligible for a duty rebate, providing cost relief to mining companies.

Royalties: Contributions to the State

In addition to taxes, mining entities are required to pay royalties to the State. These royalties are calculated as a percentage of the gross fair market value of minerals produced and sold. The rates vary depending on the type of mineral, as follows:
• Diamonds: 15%
• Platinum: 10%
• Other Precious Stones: 10%
• Gold: 5%
• Precious Metals: 3.5%
• Base Metals: 2%
• Industrial Minerals: 2%
• Coal Bed Methane Gas: 2%
• Coal: 1%

These royalties play a vital role in contributing to the national treasury and supporting various developmental initiatives in Zimbabwe.

In summary, Zimbabwe's mining sector offers an array of tax incentives and royalties, making it an attractive destination for exploration and mining activities. These provisions not only encourage investment but also contribute to the sustainable development of the country's mineral wealth.
Clifford S Ncube is a Legal Practitioner, Conveyancer and Notary Public, practising in Zimbabwe. Holding an LLB Degree from the University of Cape Town (UCT) and a Diploma in Journalism with the Institute of Commercial Management (UK).He can be contacted at: cliffordsncube@gmail.com/ Cell: +263 777 244 855