The mining sector contributes over 60% of Zimbabwe’s export earnings which is used to oil the economy through the importation of essential raw materials for production and drugs.
At the moment, large scale miners retain 70% of their export proceeds which has to be liquidated in 60 days.
The balance is paid in local currency at the prevailing auction rate. Local miners, especially large scale miners, who were grappling with tax issues and levies which were too high, now want taxes to be pegged at the same level with foreign retention levels for them to continue operating sustainably.
Mining experts said the large scale miners were riled by government’s move in July to allow small scale miners to retain of 100% of their earnings despite the fact that some players barely pay taxes and levies.
Chamber of Mines of Zimbabwe CEO Isaac Kwesu told Business Times that the government should come up with a foreign exchange retention framework that aligns with the statutory obligations.
Kwesu said submissions have been forwarded to the ministry of Finance for consideration in the 2021 National Budget.
“We want the government to pay us 100% in forex to meet our statutory obligations.
For now, we can’t continue with the 70% forex retention threshold when the government is demanding 100% of the statutory mining requirements to be paid in United States dollars as that money leaves the miners in the red,” Kwesu said, adding that the 70% was applicable when all the statutory obligations are paid at that level.
He warned the capital intensive sector would default in paying taxes as they would not have the capacity to do so.
“Treasury is demanding 100% irrespective of the fact that the miner got 70% forex payment, ZESA is also demanding 100%, the Environmental Management Agency is also demanding 100% forex payment and the Rural District Council is also demanding the 100% so the issue is that 70% is inadequate not that we don’t want to pay,” Kwesu said.
He said production levels across the industry would improve if authorities raise the retention levels.
In July 2020, the government reviewed forex retention to 70% from 55% implemented last year to curb massive mineral leakages amid indications over 30 tonnes of the yellow was smuggled last year.
Gold Miners Association of Zimbabwe chief executive Irvine Chinyenze told Business Times the mining sector taxes were a hindrance to attracting investment in the industry.
“In order to attract big investment in the mining sector we should totally do away with some taxes and levies and when taxing, government should tally forex retention level with the taxes if not lower them,” Chinyenze said.
In his 2021 pre-Budget Strategy paper, Finance and Economic Development minister Mthuli Ncube said mining and quarrying would grow by 11% next year on investment in the sector and firming international mineral prices.
The call by miners to wholly retain their proceeds comes at a time cumulative gold deliveries up to September slumped by 28% to 14.76 tonnes compared to 20.64 tonnes delivered during the first nine months of 2019 amid fears of smuggling of the precious metal on delayed payment.
Kwesu said the delay in payments disrupted production cycle as some payments could take two weeks and others up to eight weeks.
“This means you will have two months without payment and you cannot produce at the same scale when the working capital is not yet available.
Miners were going to banks to seek for bridging finance which had also been difficult to access,” he said.
“Working without payments was one of the major issues of a subdued performance of the sector.
Small scale miners need money instantly as they do hand to mouth to operate so any delay in payment will result in catastrophe for the miners and the sector.
“Government is trying to sort out the delays but they continue to occur and this means delayed payment is also a delay in production.”
In June, resources group RioZim stopped gold mining operations due to a failure to meet operating costs.
The firm said the then fixed exchange of 1:25 was unviable for the 30% receipts which the miner got in local currency as it was unable to meet its operational costs.
The company said it was owed US$2.4m and ZWL$65.5m by Fidelity Printers and Refiners.
President Emmerson Mnangagwa’s administration is targeting US$12bn export receipts for the mining sector by 2023 anchored on effectively pursuing value addition and beneficiation of local minerals such as lithium, nickel, graphite, gold, platinum and chrome. Gold is expected to lead the charge with US$4bn.
Ncube said attainment of the target would entail increased investment in the exploration, extraction, value addition and beneficiation across all minerals. He said the government would prioritise finalising amendments to the Mines and Minerals Act expected to bring a market based conducive investment climate that provides the stability, consistency, competitiveness and transparency in the sector.
Ncube said the amendment should pave way for the formulation of mineral policies and facilitate the resuscitation of strategic closed mines.