ZIMBABWE needs to design a proper mining taxation regime to establish an appropriate royalty system that ensures the economy realises optimal revenues during a commodity boom and bust period, a report has said.
BY FIDELITY MHLANGA
According to an African Forum and Network on Debt and Development (Afrodad) report entitled The Impact of Fluctuating Commodity Prices on Government Revenue in the Sadc region – The Case of Platinum in Zimbabwe, the country’s tax system was susceptible to transfer pricing.
“Currently, Zimbabwe uses ad valorem based tax system, which is not optimal since it is based on export values, which are not only lower than production values, but also subject to transfer pricing by the mining companies and their sister companies in South Africa,” the report reads.
“This indicates that a hybrid approach royalty system, incorporating both the unit-based method and value-based method would achieve better results in the platinum sector.”
Afrodad said minerals, beneficiation in Zimbabwe was mainly being pushed through the mining sector policies rather than through the industrial policy, as the case in Japan and China.
The report said that the approach was inefficient and ineffective, as the firms have mining expertise, but do not have the requisite technical capacity to beneficiate minerals.
“Therefore, the policy might need to identify beneficiation as a secondary industry, which needs not necessarily be undertaken by the mining firms, but through investment and other policy incentives to attract the development of a beneficiation industry, where any player can participate,” the report said.
Afrodad said Zimbabwe needs to intensify the finalisation of the platinum refining policy, otherwise it will not realise the full benefits from its platinum resources in raw form.
The organisation said the government needs to consider possibilities of exploiting the industrial policy in pushing for the beneficiation of minerals, through encouraging the establishment of a secondary industry that is competent to beneficiate minerals.
This comes as Zimbabwe signed a deal with Australia’s Kelltech Ltd for the construction of a platinum refinery at a cost of $200 million.
“Zimbabwe needs to undertake mining sector regime reforms by developing a country mining vision (CMV) that domesticates the Africa Mining Vision (AMV),” Afrodad continued.
“Specific strategies, which Zimbabwe needs to adopt as a way of ensuring that it realises maximum benefits from mineral resources, include those that are captured by the Action Plan to Implement the AMV.”
Afrodad urged the country to develop systems to evaluate components of tax regimes for leakages, losses and tax avoidance and evasion (for example transfer pricing), and reviewing terms of double taxation agreements and bilateral investment treaties (BITs) with host countries of mining companies.
“In Zimbabwe, the impact of platinum price fluctuations on government tax revenues tends to be muted because the contribution of platinum to total tax revenue is small — less than 3,5% of total tax revenue,” the organisation said.
“In addition, platinum mining companies have adjusted their procurement policies to effectively exploit VAT refunds on local procurement, thus, effectively reducing tax revenue due to the government.
“The other reason for the low contribution to total government revenue is that platinum produced in Zimbabwe is not fully processed, hence, fetches less on the market.”