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Victoria Falls - Zimbabwe on Thursday accused mining companies in the country of tax evasion because they are funding programmes using debt financing. Miners have refuted this, saying the industry has become a major export earner for the country.
Zimbabwe has vast mineral wealth that spans gold, diamond, nickel, coal and chrome among others. These riches have attracted resource investors such as Anglo American Platinum [JSE:AMS], Metallon Gold, Rio Tinto and Impala Platinum (Implats) [JSE:IMP].
Finance Minister Patrick Chinamasa is also pressuring the mining industry to procure most of its consumables from local suppliers. Zimbabwe is pushing through an ambitious programme to encourage consumption of locally produced goods under the Buy Zimbabwe pressure and lobby group.
“Companies are using debt instead of equity to finance capitalisation,” Chinamasa told delegates to the Buy Local summit in Victoria Falls on Thursday afternoon.
Kipson Gundani, the senior economist at Buy Zimbabwe, however said that financing operations through debt does not necessarily mean companies are evading tax. He told Fin24 in an interview that mining firms are facing capitalisation shortfalls forcing them to switch to expensive borrowing facilities.
“It can be explained from various points, but mainly it's because companies don’t have capitalisation at all. The government is looking for extra tax because too much debt worsens the debt/equity ratios for companies,” he said.
The Reserve Bank of Zimbabwe last week disbursed US$5m to local gold producers to boost their capacity. Zimbabwe is eyeing a return to the London bullion market and has projected bullion output of about 17 tonnes this year.
“I am seriously considering duty rebates on consumables (for the mining industry) that are locally available. Mining is important for Zimbabwe’s growth… but concentration on a narrow range of minerals leaves the country vulnerable to commodity price (fluctuation),” he told delegates to the summit.
Miners in Zimbabwe argue that they adequately account for their earnings. Winston Chitando, executive chairperson of Mimosa Mining – the Zimbabwean joint venture partnership of Implats and Aquarius Platinum [JSE:AQP] – said at the Chamber of Mines indaba in May that mining companies in Zimbabwe are sharing their earnings with local companies, local authorities, local communities, government and employees.
The government wants local miners to process minerals inside the country although it has lifted an export ban on raw chrome effective in June. Platinum miners are also under pressure to speedily set up refinery facilities inside the country although the government is now softening its stance on this, reportedly preferring to ice a 15% levy on exports of unbeneficiated platinum.
