Mines warn over costly platinum tax . . . Tax targeted at exporters of raw platinum . . . Miners cite effect on viability, competitiveness

25 May, 2018 - 07:05 0 Views
Mines warn over costly platinum tax . . . Tax targeted at exporters of raw platinum . . . Miners cite effect on viability, competitiveness

eBusiness Weekly

Golden Sibanda
Mining firms in Zimbabwe have expressed reservations over Government’s new platinum beneficiation tax structure, warning the charges were extremely high, undermined competitiveness and viability of this strategic sector.

The new platinum tax structure took effect on January 1, 2018 and penalizes miners for export of white concentrate at 5 percent, white matte 2,5 percent and base metals 1 percent. The charges are levied on gross export value.

This comes as Government has previously shuttled back and forth trying to nudge platinum mining houses to build beneficiation facilities, a policy thrust meant to ensure the country realized optimal returns from its finite resources.

Last year, Government imposed a 15 percent levy on raw exports of platinum to jolt miners into action, but this backfired after the producers halted exports, leaving the country in a lurch, given platinum is a major forex earner.

Consequently, the platinum tax was deferred to January 1, 2018 amid indications the mining houses were making frantic efforts to beneficiate PGMs.

Platinum is strategic to Zimbabwe, as it is the second biggest foreign currency earner after gold. Together, platinum and gold account for over 50 percent of the country’s annual export earnings. Zimbabwe exports an average of 420 000 ounces of largely concentrate platinum, but also some matte.

It has four producing platinum mines namely Impala Platinum’s Zimplats, which is listed on the Australian Stock Exchange, Amplats Holdings’ and Sibanye Stillwater’s 50-50 unit Mimosa Mining Company and Anglo-American’s Unki Mines.

Chamber of Mines (CoMZ) president Batirai Manhando told the mines representative body’s annual general meeting in Victoria Falls last week that the beneficiation tax structure was impractical, as it also penalized the very new entrants.

“The sliding scale penalty framework, which imposes tax threshold depending on the level of beneficiation, is impractical, as it assumes that for a new platinum company to fully avoid these penalty taxes, it must invest in base metal refinery and precious metal refinery before breaking ground to produce ore,” he said.

Manhando said reality was that capital came first in a discrete fashion and in sync with each stage of platinum beneficiation. He said the investor needed to recoup their capital before reinvesting in the next stage of the value chain.

“Thus, there is need to consider providing a grace period of say 10 years in line with the required return or payback period. There is also need to consider company specific situations and business models including the life of mine and size of asset before prescribing timelines,” Manhando told delegates.

The CoMZ president further pointed out that it would be worth the while if the Government introduced a beneficiation incentive framework in order to achieve accelerated beneficiation of the country’s platinum group metals (PGMs).

This comes as the miners say they were burdened by a number of factors including shortage of foreign currency, capital and working capital shortages, high costs and a sub-optimal fiscal regime, whose review they said was outstanding.

Manhando said the mining sector’s competitiveness continued to be weighed down by the prevailing high cost structure, which was well above the regional averages, on the back of high electricity tariff, high cost of funding, high cost of materials and consumables on top of many fiscal charges.

He said mining fees and charges were supposed to be reviewed holistically, but as the middle of 2018 fast approaches, resolving the charges remained outstanding.

Manhando said royalties were a cost of doing business, the reason many jurisdictions allowed them to be deductible for purposes of calculating taxable income.

“We appeal to the Government to prioritise the resolution of this matter, as it impacts viability directly.

“Review of royalty levels: competitiveness requires that we benchmark ourselves against other countries we consider our peers and structure in line with our regional peers and best practice if the sector is to be seriously competitive,” he added.

The mining industry, Manhando said, continued to buckle under low operating capacity due to capital constraints to fund running operations and to expand same.

Most operators are using antiquated equipment, which have severely undermined efficiency and cost effectiveness of the sector; strategic to the economy.

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