by Greg Klein | October 20, 2014
Government demands for money could kill off Zimbabwe diamond mining, sources told the Harare Herald. According to an October 17 story, banks have been ordered to deduct an additional 15% dividend from gross diamond sales retroactive to April, when new regulations were passed.
“Officials in the sector said they will end up having more than 50% of gross sales going to taxes, inclusive of royalties, management and depletion fees, with corporate tax chewing at least 25% at the end of each year,” the Herald reported.
“That was a killer, it’s like adding a huge load on top of an ailing horse,” the paper quoted Marange Resources acting CEO Mark Mabhudhu. “Already we have royalties at 15% as well before looking at other costs which leaves me with nothing as Marange Resources.”
Exacerbating the problem, Belgian authorities last month seized roughly $40 million of Zimbabwean diamonds at an Antwerp auction pending settlement of a $500-million suit by Amari Platinum Holdings over a cancelled mining concession.
Referring to a meeting with the Ministry of Mines, Diamond Mining Company general manager Ramsey Malik told the Herald, “All the mining companies present confirmed that operations will stop if the directive is enforced.”
An anonymous source with Mbada Diamonds added, “What it means is that if government takes 15% special dividend, the other shareholder will also take 15% because you cannot declare dividend on one shareholder and leave the other. That will take our total tax costs to almost 60%.”
In July the Herald stated Zimbabwe intended to merge the country’s diamond miners with the intention of “curbing leakage in diamond revenue and enhance transparency in diamond mining,” as mines minister Walter Chidhakwa put it.
But Farai Maguwu, director of a monitoring group called Center for Community Development, predicted efforts will fail because of “strong and powerful people who are untouchable.”
The Herald also stated, “The industry has been mired in controversy over non-remittance to the national treasury and its ownership structure has never been clear, with civil groups accusing top government and military officials of pocketing revenue and committing human rights abuses in the local Marange and Chiadzwa areas.”
The Herald added, “Some independent groups that investigated the Chiadzwa dealings, including Partnership Africa Canada, accused the Mugabe regime of operating a ‘parallel government’ funded by proceeds from illegal diamond sales.”
Diamond authority Paul Zimnisky attributes last year’s Marange diamond fields production at nearly 17 million carats, or 13% of global supply by volume. But the alluvial resources are dwindling quickly. “In 2014, Marange production is estimated to drop to 8 to 12 million carats or less.”