New mining regulation chokes small to medium miners

Business Writer

Several small to medium-sized mining companies have suspended further exploration projects due to the introduction of the special capital gains tax which requires buyers of mining titles to pay 20 percent of the transaction value.

The law implemented through Finance Act Number 13 of 2023, and effective from January 1, 2024 entails a 20 percent levy on the sale of the mining title including transactions from the past 10 years.

In other words, its effective 1 January 2014.

A mining title under the special capital gains tax law includes a claim, block of claims, mining lease or special grant and (depending on the context). It also includes any document evidencing a mining right that is precedent to obtaining any of the foregoing titles, such as an exclusive prospecting license or exclusive exploration license. In addition, it can be a share, stake or interest in any mining title.

The new taxation is different from regular capital gains tax and is based on the value of the entire mining title transaction instead of the capital gain made by the seller of the title. Unlike most capital gains taxes, it is payable by the purchaser.

It has the characteristics of Value Added Tax (VAT). The new policy significantly increases the tax burden for the purchaser compared to a traditional capital gains tax where the seller pays based on profit accrued of the transfer of the mining title.

For example, under a typical 20 percent capital gains tax, if the seller of the mining title sells for US$1 million, having purchased it for US$500 000, the capital gain will be US$500 000. Tax on the capital gain at the rate of 20 percent will be US$100 000.

However, under the new law, the tax is will be US$200 000, being 20 percent of the transaction.

According to the Mining Industry Prospects report for 2025, most of the executive said most junior mining companies reported that this tax has forced them to put on hold exploration projects for discovering new assets.

“Respondent executives underscored the need to review the SCGT (special capital gains tax) framework to single out only those transactions where the parties had not complied with the laws and regulations at the time the mineral rights transfer was concluded and penalise them in line with that legislation that prevailed at the time.

Regarding environmental levies, approximately 80 percent of mining executives surveyed deemed them suboptimal.

They indicated that the current Environmental Impact Assessment levy framework of 0,8 percent to 1,2 percent of the total project cost is excessive and uncompetitive.

Respondents suggested that EIA levies should be aligned with regional averages, which typically do not exceed US$10 000.

A significant majority of mining executives advocated for the adoption of an insurance-based Environmental Rehabilitation Fund instead of a levy on gross revenue.

Concerning mining fees, respondents reported that some fees, such as ground rental fees, were high and unaffordable, negatively impacting the viability of mining projects.

They recommended reducing these high fees and aligning them with regional averages.

Approximately 90 percent of mining executives indicated that Rural District Council (RDC) levies are high compared to regional standards and vary across different districts. They noted that the calculation formula for these levies is inconsistent, resulting in disproportionately high unit charges.

Respondents suggested that RDC levies be reduced and standardised across mineral subsectors and districts.

The majority of mining executives (90 percent) believe that the effective tax rate for the mining industry is generally high.

An analysis of total tax and profitability data submitted by mining companies revealed an effective tax rate of around 69 percent for the industry.

Survey respondents argued that the level of taxation is unsustainable, as it diverts a significant portion of capital that would otherwise be reinvested in capital projects. They also noted that mining companies have been primarily relying on retained earnings to fund capital projects, and the high effective tax is reducing these retained earnings for reinvestment.