Zimplats in tax arrears
Zimbabwe - Corporate - 02-08-2010

The countryquotes largest platinum producer, Zimbabwe Platinum Mines, is still mired in tax arrears topping USD 14,3m accrued from super profits that were not remitted to the Zimbabwe Revenue Authority. Under Zimbabwean law, if a company posts phenomenal profits, this ultimately triggers the Additional Profit Tax, which is similar to a windfall tax. However, the taxman has since waived a USD 4m penalty that had been slapped on the miner for failing to honour the principal obligation of USD 23.5m.
Zimplats is still reluctant to retire the debt, citing an agreement that was signed between the company and Government through the then Minister of Mines, Mr Edward Chindori-Chininga. Zimra has since recovered USD 9.2m of the liability through withholding VAT refunds. It is believed that though the agreement was made in principle, it hasnquotet been given legal effect yet as the legal instruments that are needed to make it binding are yet to be crafted.

The tax row climaxed late 2009 when Impala Platinum Mines chief executive officer Mr David Brown lobbied the companyquotes position to President Mugabe. The details of the meeting were not made public. “As previously reported, payment of additional profit tax by special mining lease holders is provided for in the original long term agreement entered into with the Government of Zimbabwe in 1994. “In 2001, prior to Zimplats commencing operations, the Government gave a written undertaking that Zimplats would not be liable for this tax. However, to date the legislative changes required to give legal effect to this undertaking have not been promulgated hence the demand for payment of the tax by the Zimbabwe Revenue Authority. “Whilst the Government has still not indicated whether it will honour its undertakings on APT, Zimra has since ruled on the Zimplats objection to the APT assessment by setting aside the USD 4m penalty that had been charged but has insisted that the principal tax liability of USD 23,5m is payable. “Despite this matter being in dispute and discussions with Government having been ongoing for a long time, in February 2009 Zimra instituted recovery of the APT liability by withholding monthly VAT refunds due to Zimplats,” said the company in its latest financials for the 3 months ending 31 December 2009.

Discussions with the Government are ongoing. Despite exploitation of the countryquotes non renewable resource, the country has not been able to benefit in financial terms, even in years when there is a commodities boom. Authorities note that tax waivers and similar incentives have been the main factors haemorrhaging the countryquotes fiscus.
Indications last week were that Government might not, in the short term, waive the APT.
Said a Ministry of Finance staffer: “We are alive to the row between Zimplats and Zimra. When a company posts super profits this ultimately triggers the Additional Profit Tax. “This is, however, not a percentage; the calculations are complicated. Currently, there is no legislation that makes Zimplats eligible to a waiver. So, they have to pay the principal amount that is owed to Government.” In the 2010 National Budget, Minister Tendai Biti said there was a need to reform the countryquotes tax system so as to make it simple and user friendly. He further noted that the fiscus was primarily being crippled by the system of exemptions that were in some instances prejudicing the country of the much needed revenues. Despite being integral to the local economy, royalties from the mining sector contribute an insignificant amount to the national purse, a development that has been described as scandalous in some quarters. Most importantly, it is believed that the country holding the worldquotes second largest reserves of platinum is not benefiting fully from the exploitation of the resource.

An international accounting firm, Alex Stewart International, which was engaged by the Reserve Bank of Zimbabwe, claimed in 2008 that it had unearthed a non tax liability of USD 115m owed by Zimplats from additional tax on profits. However, Zimplats denied the tax liabilities. Instead, the platinum producer claims that it is owed USD 34.13m by the RBZ through money that was banked with the central bank and was drawn in Zimbabwe dollars to fund local costs. The Zimbabwe dollar has since been retired by Treasury. Government is now being engaged in order to inherit the debt, a development that will put an additional debt burden on the Government. Analysts estimate that if the Government takes over the debt, each individual will owe Zimplats USD 2. As the global economy gradually recovers from the adverse effects of the global financial crisis, the companyquotes growth trajectory is expected to continue. For the December quarter, the minersquote operating profit jumped 138% to USUSD 50m from the previous quarter as revenues soared to USD 107m from USD 64.6m in the review period.

Production is further expected to be ramped up after the commissioning of the Ngezi plant.
However, the continued weaknesses of the United States dollar against the rand continues to trim profits as a significant portion of input costs is incurred in rand. Prices of platinum will continue to increase driven by the global recovery in car sales. Despite a slump in demand in 2009, the motor car industry is beginning to gain, spurred on by burgeoning trade in China, which has evolved as the worldquotes largest car market. In the December quarter, prices of the metal rose to USD 1,193 per ounce from USD 907 per ounce recorded a quarter earlier. On 4 February 2010, platinum prices had risen to USD 1,568 per troy ounce, while palladium and rhodium were quoted at USD 435 per ounce and USD 2,250 per ounce respectively; raising expectations that Zimplatsquote Q4 revenues will even be more than those recorded in the period under review.

Source: Sunday Mail