Home » Industry » Zimplats Wins Tax Dispute

PLATINUM miner, Zimplats, has won an order from the High Court to pay royalties at a rate agreed with government in 1994, creating room for a massive claim against the Zimbabwe Revenue Authority (ZIMRA) which dismissed the company’s appeal against a higher tax claim in 2009. The ruling is likely to result in Zimplats claiming more than US$120 million in rebate for overpayment of royalties, according to tax experts. In a judgement issued last week, Justice Lavender Makoni said Zimplats was “liable to pay royalty rates at 2,5 percent of the fair market”, and not five percent as demanded by ZIMRA or any other rate as stipulated by the Finance Act.

The judgement follows an appeal by Zimplats against ZIMRA over its amended assessment a few years ago for additional profit tax on the platinum group metals miner, which launched an objection on the basis that royalty payments from its operations were payable in terms of an agreement entered into with government. As a result of the tax claim, Zimplats’ tax charge for the year to December 31, 2009, when ZIMRA rejected its appeal, amounted to US$31 million, according to financial results for the year.

However, in court papers, Zimplats said it had overpaid royalty rates to ZIMRA by US$6 million for the period January 1, 2004 to September 30, 2010 when it paid at the legislative rate of three percent and 3,5 percent instead of 2,5 percent as provided for in its agreement with government.

“The applicant is entitled to recover the amount overpaid in the sum of US$6,057,146.00 (six million fifty seven thousand one hundred and forty six United States Dollars) by way of set off royalties which were due and payable for the period of October 1, 2010 to March 31, 2011,” said Zimplats in its application. Makoni did not, however, rule on restitution, saying Zimplats had “not persisted” with the issue of overpayment of royalties in its submissions. “I will take it that the applicant abandoned the claim and rightly so in my view. The applicant had not, in its founding papers, illustrated to the court how the alleged overpayment was made in respect of each year,” she said. Zimplats had sought a declaratur, an order over its right in the tax dispute, and against a garnishee issued by ZIMRA against its accounts in 2011 over alleged arrears in royalty payments.

The company had argued that its payment of royalties was provided for in the original long-term Mining Agreement (MA) it entered into with the government in 1994. Prior to Zimplats commencing operations in 2001, government gave a written undertaking that Zimplats would not be liable for this tax but no legislative changes were effected to give this undertaking legal effect. As a result, ZIMRA had pounced on the platinum miner, saying its agreement with government had no effect at law. Makoni ruled: “Owing to the operation of Part XIV Section 243 of the Mines and Mineral Act [Cap 21:02], the applicant’s MA with the government takes precedence over Par XIV s 244 and s 245 of the Mines and Minerals Act [Cap 2:05] and takes precedence over Chapter VII s 36, s 37, s 37 A and the Schedule of the Finance Act [Cap 23:04].” ZIMRA had asked the court to dismiss Zimplats’ claim, saying its application was invalid, that Zimplats had approached the court with dirty hands, that ZIMRA was an agent of government and attracted no personal liability subject to the claim by Zimplats and that there were material disputes of fact “not capable of resolution on the papers”.

Makoni said as it turned out, by the time the matter was heard, Zimplats had settled all outstanding royalties in full and dismissed ZIMRA’s averment that it could not be held liable for the claim on account that it was an agent of government. She also dismissed ZIMRA’s claim over dispute of facts, saying she agreed with Zimplats that the question before the courts was one of law. ZIMRA is one of the leading platinum miners in Zimbabwe. It is also actively involved in various corporate social responsibility programmes where it has pumped millions of dollars. Its involvement in communities has also been through Community Share Ownership Trusts, where it has emerged among the few local companies to heed government’s call for elaborate corporate participation in communities.

Source : Financial Gazette