This proposal marks a significant shift in Zimbabwe’s taxation policy toward the mining sector, directly impacting the financial planning and cash flows of mining companies. The measure proposes to amend Section 15(3) of the Income Tax Act to limit the utilization of assessed losses carried forward by mining companies to 30% of the loss, effective from 1 January 2026. This restriction also specifically includes special mining lease operations.
⛏️ Impact Assessment: Limiting Mining Assessed Loss Deductibility
1. The Context: Why Mining Losses Were Treated Differently
Historically, the Zimbabwean mining sector enjoyed two key tax advantages related to losses and capital expenditure, recognizing the high risks and long gestation periods of mining projects:
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Full Capital Expenditure Deduction: Mining companies are generally allowed to deduct the full amount of capital expenditure (exploration, development, equipment) in the year it is incurred (a 100% upfront allowance, or immediate write-off), as opposed to depreciating it over many years.
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Indefinite Loss Carryover: Unlike other businesses that have a six-year limit for carrying forward trading losses, mining companies have historically been allowed to carry forward their assessed losses indefinitely.
This new proposal partially removes the second advantage.
2. Decision Impact: Financial & Operational
The impact of restricting the deduction of assessed losses to only $30\%$ is immediate and significant for any profitable mining operation that has historical losses to claim.
A. Increased Immediate Tax Liability (Fiscal Impact)
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Accelerated Tax Payments: The primary effect is that companies will reach taxable income sooner. If a company has a current year profit (taxable income before loss set-off) of $\$10$ million and a brought-forward loss of $\$20$ million, under the old rules, they would pay no tax (they deduct the full $\$10$ million). Under the new rule, they can only deduct $30\%$ of the assessed loss, meaning $\$6$ million $(\$20 \text{ million} \times 30\%)$.
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New Taxable Income: $\$10 \text{ million (Profit)} – \$6 \text{ million (Loss Deduction)} = \$4 \text{ million}$.
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Result: The company pays corporate tax (currently $25\%$) on $\$4$ million, immediately increasing the government’s revenue stream.
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Reduced Tax Deferral: This limits the ability of mining companies to defer income tax obligations, effectively collecting tax revenue faster from profitable projects.
B. Reduced Value of Tax Incentives (Investment Impact)
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Diminished Project Economics: Large-scale mining projects are modeled over decades, with their initial feasibility highly dependent on the ability to recoup massive upfront capital expenditures and carry forward any resulting tax losses. Limiting the loss utilization reduces the Net Present Value (NPV) of the project, as the tax shield is realized more slowly.
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Discouraging New Investment: While the $100\%$ capital expenditure allowance remains a powerful incentive, restricting the loss utilization sends a mixed signal. It may deter new, high-capital, long-gestation projects that rely on rapid recovery of their tax position once profits begin.
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Special Mining Leases: The explicit inclusion of Special Mining Lease operations (which often have a preferential tax rate of $15\%$) ensures that even the largest and most strategically important projects cannot fully circumvent this restriction.
C. Compliance and Administration
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Complexity: Mining companies will now have a dual system: the assessed loss carried forward is subject to the $30\%$ cap, but the remaining $70\%$ is still carried forward to the next year (until fully utilized or the rules change again). This increases administrative complexity for both the company and ZIMRA.
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Increased Scrutiny: This rule, combined with Zimbabwe’s ongoing efforts to increase revenue from the mining sector, suggests ZIMRA will increase audits to ensure the remaining $70\%$ of the loss is correctly tracked and not utilized prematurely.
3. Overarching Policy Goal
The motivation behind this measure is clear:
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Boost Domestic Resource Mobilization (DRM): The government views the indefinite carry-forward of large losses by established mining companies as a leakage in the tax system. By capping the deduction, the state ensures that once a mine becomes profitable, it contributes to the fiscus immediately, rather than waiting years to fully utilize old losses.
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Balance Fiscal Needs: Given Zimbabwe’s pressing need to increase public revenue and reduce reliance on indirect taxes, this measure is a direct method of increasing corporate income tax collection from one of the country’s most successful export sectors.
In conclusion, the proposed amendment is a revenue-enhancing measure that prioritizes the state’s immediate fiscal needs over maintaining the full historical tax incentives for the mining sector. It significantly alters the tax economics for mining companies, making profitability immediately more expensive from a tax perspective.
