HomeBusinessMines not out of the woods yet — Gapare

Mines not out of the woods yet — Gapare

MINES will not meaningfully contribute to corporate taxes owing to years of economic decline, Chamber of Mines chief Victor Gapare has said. Gapare said although mines should contribute a significant percentage to government’s revenue, years of economic mismanagement and lack of investment in the sector have shrunk the sector’s contribution to the fiscus.

This comes after Finance minister Tendai Biti announced government would impose new tax measures for chrome miners and increase mining royalties for precious minerals.

Government is currently levying 15% corporate tax on net profit generated by miners as well as royalties ranging from 2% for base metals to 10% for diamonds.

Biti last month also proposed a 0,5 basis point increase on royalties for minerals such as gold and silver, saying the current revenue inflows from mining tax and royalties by the extractive industry was “unacceptable as it was unpalatable”.

But Gapare says government is not taking into consideration developments of the past decade in the sector.

He said: “Given the above mine project life cycle, it is important to understand the policy implications for Zimbabwe given the economic conditions of the last 10 years. One must consider that virtually no new capital went into the industry in the last 10 years save for the platinum and diamond mines.”

The chamber estimates that industry will require US$3 to 5 billion over the next five years in new capital.

“Over the last 18 months, assertions have been made that the industry is not contributing enough to the fiscus. Our view has always been that the mining industry’s contribution has to be taken in the context of the economic performance of the country as a whole. Virtually all businesses are stressed and seriously undercapitalised and in most cases are operating between 20% and 40% capacity utilisation. Under those circumstances, it is unlikely that the businesses will generate a lot of corporate taxes,” Gapare added.

The gold sector, which traditionally accounted for at least 50% of all mining revenues, had virtually collapsed in 2008.

Gapare highlighted how in 1999 Zimbabwe produced 27 tonnes of gold and yet in 2008 production came down to 3,5 tonnes.

Major mining entities (outside gold) which formed the backbone of the mining industry in the past included Bindura Nickel Corporation (BNC), Zimalloys, Shabanie Mashaba (SMM) and Mhangura, among others have either been shut or are in trouble.

All these mining companies fell “victim to the vicious economic conditions of the last 10 years in Zimbabwe and have virtually closed shop”, he said.
Government is expecting US$1,75 billion by year-end in revenue and increasing taxes seems to be the only way to generate the money in a country with limited foreign direct investment.

Gold production during this period fluctuated between 0,61 tonnes and 0,52 tonnes, while asbestos continued to be on a downward trend.

Royalty applied to mining activity is the charge incurred by companies for exploiting mineral resources owned by the state.

 

Chris Muronzi

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