The requirement for mineral royalties to be paid partly in kind has become law with effect from the beginning of last month, with miners of designated minerals now required to remit half their royalties to the Reserve Bank of Zimbabwe in the form of refined minerals.
The original policy announcement last month by President Mnangagwa of mineral royalties to be paid half in kind, in the form of the actual mineral, gave gold, diamonds, platinum and lithium as examples. The actual temporary amendments to the Reserve Bank of Zimbabwe Act allow for this 50-50 split between cash and minerals to be applied to any mineral deemed to be part of the Reserve Bank reserves and any other mineral where this is desired where the cash component is paid in foreign currency.
To convert the policy into the tax law, President Mnangagwa invoked his Presidential powers and directed that mining firms surrender to the Reserve Bank of Zimbabwe half the royalties due to the Zimbabwe Revenue Authority in the form of the mineral being taxed.
At present royalties on diamonds and other precious stones are 10 percent of the value mined; for gold it is 5 percent if the price is over US$1 200 an ounce, the position at present, but 3 percent if under, but with small-scale miners paying 2 percent; platinum group metals have recently had the royalty raised to 5 percent; other precious metals, basically silver, pay 4 percent; miners of base and industrial metals pay royalties of 2 percent; black granite and coal bed methane pay 2 percent; and coal miners pay 1 percent.
The main base and industrial metals are chrome, nickel, iron and as production resumes copper.
With the split between half this tax paid in acceptable currency and half in the actual mineral, 5 percent of diamond production will be paid in stones, 2,5 percent of gold and platinum paid in metal, and 1 percent of base metals. If lithium is included this would be in the form of a suitable compound since lithium is a highly reactive metal in raw form. The other half of the royalty will continue to be paid in cash.
Royalties are a tax on volumes of minerals produced and are due to the owner of the mineral rights. In Zimbabwe this is the State, and has been since the 1930s when the mineral rights owned by the British South Africa Company were taken over by the State for modest compensation.
Many countries reintroduced royalties to ensure that mining companies of State-owned minerals did pay a fair tax, rather than cope with battles between tax accountants and tax assessors and cope with profits being transferred within a mining company to a low tax haven.
The storage of the actual stones or metals by the Reserve Bank of Zimbabwe will allow the bank and the Government to build up reserves to support the currency and trade, with the Government having the option of selling off some of these reserves when more liquid foreign currency is needed, and in any case being able to sell when market prices are at a peak.
The regulations, which were promulgated through Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Finance Act) Regulations, 2022 were gazetted last Friday.
The regulations took effect from on October 1 and confer the central bank with the right to determine the level of purity and quality of the mineral while the Zimra Commissioner General has the right to substitute any quantity of the mineral originally proffered in payment of a royalty by another quantity of equivalent value of the same mineral in the prescribed form, purity and quality.
The amendment states that the payment in kind is for gold and those minerals also deemed to be a component of the reserves maintained by the Reserve Bank against domestic and international obligations but also for other minerals where the other half is paid in foreign currency. This presumably excludes the 1 percent royalty on coal where almost all production is consumed within Zimbabwe.
Commenting on the new regulations to remit mining royalties in kind, RBZ Monetary Policy Committee member, Mr Persistence Gwanyanya described the regulations as noble.
“It is a good move especially on special minerals. It helps us as a country to build reserves. The reserves are important for currency stabilisation, so it is a noble development. Most countries have mineral reserves, Russia has a significant reserve,” said Mr Gwanyanya.
“With the mineral reserves we are able to benefit from the movement of mineral process globally. If you notice, commodity prices have been on the rise particularly during the Covid-19 pandemic. You cannot put your eggs in one basket.”
Economist, Professor Gift Mugano concurred with Mr Gwanyanya, adding that the reserves will encourage fiscal discipline.
“The desire to hold royalties in minerals is that it can be used to back the local currency. When we have minerals as reserves they are not liquid, so it instils financial discipline to monetary management system,” said Prof Mugano.
He said there was need for an import cover lasting a long period and at least US$3 billion worth of reserves.
“We can have the equivalent in mineral reserves,” he said. – The Herald
