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Fidelis Munyoro
Chief Court Reporter
THE Zimbabwe Revenue Authority (ZIMRA) could before 2022 only claim mining royalties from miners of ores, not from concentrates and other processed products, the High Court has ruled, blocking the revenue authority from collecting more than US$10 million and nearly ZWL$1 billion from a chrome smelting company.
The ruling has dealt a major blow to ZIMRA which was ordered to refund Kwekwe-based Zimbabwe Alloy Smelting Company (ZIMASCO) taxes paid for these processed and semi-processed mineral-bearing products, for the period January 2019 to September 2022.
The High Court was interpreting the relevant legislation as it existed before 2022.
ZIMASCO had approached the High Court seeking a declaration that chrome ore concentrates and ferrochrome are “mineral bearing products” rather than “minerals” and so do not attract mining royalties when they are sold.
The application was strenuously opposed by ZIMRA, which insisted that the products were in fact minerals and, therefore, attracted liability for mining royalties.
Two issues for determination in this dispute were first, whether ZIMASCO was obliged to pay royalties on ferrochrome and chrome ore concentrates that it disposed of during the period between January 2019 to September 2022.
And if the court decided that ZIMASCO had an obligation to pay the royalties, then the second issue would be whether ZIMRA properly calculated the royalties to be paid for the period in dispute.
After hearing both parties’ counsel, Justice Paul Musithu granted the application by ZIMASCO, ruling that chrome ore concentrates and ferrochrome alloy are not minerals but mineral bearing products.
The judge noted that ZIMASCO did not sell the chromite ore that it extracted from the earth.
He also found that prior to January 2022, the Minister had not fixed rates of royalties in respect of mineral bearing products, and for that reason ZIMASCO was not obliged to pay royalties for the chrome ore concentrates and ferrochrome alloy which it disposed during the contested period.
At the end, the judge declared that chrome ore concentrates, and ferrochrome are mineral bearing products and no mining royalties were payable on their disposal.
Consequently, the judge ruled that ZIMASCO was not liable to pay mining royalties to ZIMRA on the chrome ore concentrates and ferrochrome, which the smelting firm disposed of during the period in question.
“The schedules issued by the respondent (ZIMRA) to the applicant on 24 March 2023 for the total sums of ZWL$881 544 511.00 and US$10 523 347, as shortfalls of mining royalties be and are hereby set aside,” ruled Justice Musithu.
“ZIMRA is ordered to refund the sums of Z$389 606 502 and US$2 485 183 and any other amount paid by the applicant to the respondent in discharging the mining royalties in the total sums of Z$881 544 511 and US$10 523 347, as the shortfall of mining royalties and penalties due by the applicant for the period January 2019 to September 2022.”
Zimra conducted a review of ZIMASCO’s tax affairs, and claimed that from 2019 to 2022, the company used an incorrect formula in calculating royalties by basing them on the ex-work value which excluded distribution costs.
According to ZIMRA, the use of the ex-works value was incorrect because Section 37 of the Finance Act required that mining royalties be calculated based on the face value of the invoice.
The tax collector then made the recalculation of the mining royalties for the period 2019 to September 2022, and the imposition of a 100 percent penalty. The recomputed outstanding royalties together with the penalties added up to ZWL$604 922 007 and US$7 052 406.
ZIMASCO disagreed with the revenue authority’s findings, arguing that it had correctly calculated and paid the mining royalties.
Through its lawyer, Advocate Thabani Mpofu, ZIMASCO argued against ZIMRA’s position at law.
Adv Mpofu argued that the rate fixed for minerals could not be transposed for the rate fixed for mineral bearing products.
Adv Mpofu said the schedule to the Finance Act limited itself to minerals till the Finance Act 7 of 2021 was introduced.
The legislation at the relevant times were fixing rates in respect of minerals and not mineral bearing products, a position he argued was acknowledged by ZIMRA in its opposing affidavit.
The Finance Act 7 of 2021, argued Adv Mpofu, had no retrospective application and so it could not govern the period before January 2022, and for that reason, no royalties were payable.
He pleaded with the court to order ZIMRA to refund his client the amount collected. Adv Mpofu also argued that royalties were computed on gross fair market value and not the invoice value or the selling price.
But ZIMRA lawyer, Mr Simplicio Bhebhe, submitted that very few minerals were exported in raw form, as they were beneficiated to sell a product of higher value.
Ferrochrome and chrome ore were, therefore, products of beneficiation, and the mineral was subject to royalties.
On gross fair market value, Mr Bhebhe submitted that this was the methodology of calculation of royalties, hence the questions of fairness or equity did not arise.
He insisted that Section 37(2) of the Finance Act was clear that royalties were based on the face value of the invoice and not the face value of minerals.
Mr Bhebhe further submitted that in the calculation of royalties, it did not matter where minerals were sold.
Transport costs were deducted for income tax purposes as allowable deductions, said the lawyer, arguing ZIMASCO could not deduct transport costs when these were allowable deductions for income tax purposes.
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