In a significant legal victory for Zimbabwe Alloy Smelting Company (ZIMASCO), the High Court has ruled that the Zimbabwe Revenue Authority (ZIMRA) cannot collect mining royalties on chrome ore concentrates and ferrochrome produced by the company prior to January 2022. This ruling prevents ZIMRA from claiming over US$10 million and nearly ZWL$1 billion in royalties owed by ZIMASCO.
The court’s decision arose from a dispute regarding the classification of chrome ore concentrates and ferrochrome. ZIMASCO argued that these products should be classified as “mineral-bearing products” rather than “minerals,” which would exempt them from mining royalties. ZIMRA contested this interpretation, asserting that these products were indeed minerals and therefore subject to royalties.
Judge Paul Musithu presided over the case, examining the relevant legislation prior to 2022. The court found that ZIMASCO did not sell the raw chromite ore it extracted, and that the Minister had not established royalty rates for mineral-bearing products before January 2022. As a result, the court declared that ZIMASCO was not liable for royalties on the chrome ore concentrates and ferrochrome sold between January 2019 and September 2022.
The ruling included an order for ZIMRA to refund ZIMASCO a total of ZWL$389,606,502 and US$2,485,183, along with any additional amounts paid related to the disputed royalties. The judge set aside ZIMRA’s claims for royalties totaling ZWL$881,544,511 and US$10,523,347.
ZIMRA had previously conducted a review of ZIMASCO’s tax practices, contending that the company had incorrectly calculated royalties based on an ex-works value that excluded distribution costs. ZIMRA argued that royalties should be calculated based on the face value of the invoice, as mandated by Section 37 of the Finance Act.
In response, ZIMASCO maintained that its calculations were accurate and that the rates for minerals could not be applied to mineral-bearing products. Advocate Thabani Mpofu, representing ZIMASCO, emphasized that the Finance Act 7 of 2021, which introduced new rates, did not have retrospective application. Thus, royalties for the earlier period should not be imposed.
ZIMRA’s counsel, Mr. Simplicio Bhebhe, countered that most minerals are processed into higher-value products, and therefore, the royalties should apply to beneficiated products like ferrochrome. He asserted that the calculation methodology was clear, and ZIMASCO’s argument regarding transport costs did not alter the obligation to pay royalties.
This ruling marks a pivotal moment for ZIMASCO, enabling the company to recover substantial funds and clarifying the legal framework surrounding mining royalties in Zimbabwe.
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