Exploring the new mines and taxation law

In Zimbabwe, the Finance Act No. 13 of 2023, specifically Section 26(3), introduces a unique provision regarding the taxation of mining titles. This legislation imposes a special capital gains tax on the transfer of a mining title, encompassing transactions both within and outside the country. The intricate details of this tax are outlined below.

According to Section 26(3), a special capital gains tax is applicable under the following circumstances:

a) The transfer of a mining title within ten years leading up to January 1, 2024, to an entity that continues to hold it on January 1, 2024.
b) The transfer of a mining title to any entity at any time on or after January 1, 2024.

The subsequent subsections provide clarification:

a) The liability to pay the special capital gains tax for the transfer to an entity mentioned in subsection (3)(a) persists even if the mining title becomes void after January 1, 2024. The tax is payable based on the latest transaction leading to the entity holding the title on January 1, 2024. If the entity transfers the title again post that date, it becomes subject to the special capital gains tax under subsection (3)(b).
b) The liability for the transfer to an entity specified in subsection (3)(b) remains unaffected even if the mining title ceases to exist for any reason between the transfer and the due date for tax payment.

This tax is denominated in United States Dollars or the equivalent in any foreign currency at the prevailing international cross rate of exchange during the transfer. The tax rate is fixed at 20% of the transaction value, payable by the transferee. In case of default by the transferee, the owner of the mining title before the transfer becomes responsible for payment.

Approval from the Minister of Mines or any authorized person or authority reduces the tax rate to 5% of the transaction value.

In instances where a mining title becomes void due to cancellation, forfeiture, surrender, or other reasons, the special capital gains tax may be waived if an affidavit is presented to the Commissioner General, affirming that the extinction was not intended to avoid tax liability.

The special capital gains tax must be settled by April 1, 2024, for transfers preceding January 1, 2024. For transfers after January 1, 2024, the tax is due within 30 days after the transaction, with the Commissioner General having the authority to extend the payment period.

This tax mechanism raises concerns as it deviates from conventional capital gains tax principles. Unlike traditional capital gains tax, it is not based on gains but is a percentage of the purchase price. Additionally, the tax is payable by the transferee, not the recipient of the purchase price, and operates retrospectively for ten years. Such retrospective application, extinguishing accrued or vested rights, is generally inconsistent with legal principles. The constitutionality of this unique capital gains tax structure may face challenges in the future.

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