The Chamber of Mines Zimbabwe (COMZ) is in discussions with the government regarding the recently introduced special capital gains tax on mining titles.
The new tax, implemented through Finance Act Number 13 of 2023 and effective from January 1, 2024, requires the purchaser of a mining title to pay a tax of 20 percent of the entire transaction value, including those dating back to the past decade.
According to the Chamber, a key concern is protecting companies that previously complied with the law when disposing of mineral rights. Issacs Kwesu CEO of CoMZ, expressed optimism that the government will consider the Chamber’s submissions “to promote capital inflows in exploration activities that guarantee sustained development and growth for our mining industry in the medium to long term.”
The new tax differs significantly from a traditional capital gains tax in two key ways. Firstly, it is levied on the entire transaction value, not just the seller’s capital gain. Secondly, the purchaser, not the seller, is liable for the tax. This places a much higher tax burden on the buyer compared to a standard capital gains tax where the seller pays tax on the profit earned from the sale.
For instance, under a typical 20 percent capital gains tax, if a mining title is sold for US$1 million, with a purchase price of US$500,000, the capital gain would be US$500,000. The tax on this gain would amount to US$100,000. However, under the new law, the tax would be US$200,000, which is 20 percent of the entire transaction value.
The Chamber of Mines believes that the current policy might hinder investment in exploration activities, which are crucial for the long-term growth of Zimbabwe’s mining industry. They are hopeful that their discussions with the government will lead to a revision of the policy to create a more investment-friendly environment.