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Afrochine under fire for allegedly under-declaring US$3 million ferrochrome royalties

According to a High Court ruling dated 29 February, Afrochine was calculating royalties on a value that excluded ocean freight costs since 2019, violating the Finance Act [Chapter 23:04], thereby accumulating US$2 872 897.89 and ZW$97 682 345. 37 in debt respectively.

AFROCHINE (Private) Limited, a Chinese-owned smelting company operating in Chegutu, has come under fire from the Zimbabwe Revenue Authority (Zimra) after it emerged that the firm has under-declared US$3 million in royalties on the sale of ferrochrome alloy (FCA).

The company, Zimbabwe’s largest chrome smelting operation, is a subsidiary of Chinese conglomerate Tsingshan Holdings, which accounts for 25% of global steel production, and has a huge presence on Zimbabwe’s chrome fields.

Tsingshan is also running the US$1.5 billion steel plant in Manhize through subsidiary Din[1]son Iron and Steel Company (Disco), touted as Africa’s largest integrated steel plant, which has seen displacements of villagers and mass loss of land without prior-informed consent.

According to a High Court ruling dated 29 February, Afrochine was calculating royalties on a value that excluded ocean freight costs since 2019, violating the Finance Act [Chapter 23:04], thereby accumulating US$2 872 897.89 and ZW$97 682 345. 37 in debt respectively.

The company is accused of under-declaring royalties on minerals for a period dating back to 2019. Based on Afrochine’s sales on a contract, referenced No. 166/2020 Part 3.1 cited in the ruling, an ocean freight charge of US$0.10/1b was deducted, which was used as a benchmark for pricing ferrochrome to reach an ex-work price of US$.0.60/1b.

Ocean freight pricing is the core cost for transporting cargo on a ship, while ex-work pricing includes production costs, minus any internal taxes, which are, or may be, repaid when the product obtained is exported. Broken down, Afrochine’s outstanding royalties on mineral tax are pegged at US$2 872 895. 89, which includes the principal amount of US$880 361.54, penalty of US$1 760 723.09 charged at 200% in line with section 37(5) of the Finance Act [Chapter 23;04], including interest of US$227 772.24, according to the ruling.

Afrochine also has a local currency debt totalling ZW$97 682 345.37 due to the Reserve Bank of Zimbabwe (RBZ) retention policy in apportioning of the payment of royalties on minerals in local currency, which includes the principal of ZW$22 507 851.49, penalty of ZW$45 015 702.97 charged at 200% and interest of ZW$30 154 75.91.

Afrochine has also lost the bid to overturn Zimra’s tax review findings, with High Court judge Emilia Muchawa dismissing the company’s application.

“I have found that the applicant erred in declaring royalty on the face value of the invoice based as it was on the ex-works price of 10 cents less than the Fast Markets Ferro Alloys price. I further found that the exclusion of the cost of freight from the invoice value is a deduction from the gross fair market value and that it is proscribed by section 37 (9) of the Finance Act,” Justice Muchawa said in her ruling.

“The reference to double the amount of royalties payable as the primary civil penalty has been found to mean 200% penalty over and above the royalty due. Costs generally follow the cause. Accordingly, the urgent court application is dismissed with costs.”

In its defence, Afrochine through its lawyers Mushoriwa Pasi Corporate Attorneys argued that the market benchmark price for ferrochrome is 70 cents per unit, excluding transportation costs (ex-works, Hong Kong), hence the selling price should be accepted as 60 cents per unit, (ex-works, Selous, Zimbabwe). On the other hand, Zimra said that royalties are a government’s way of obtaining a share of a finite resource that is being taken away from the country by a miner or some compensation for the loss of such finite resource.

“It is stated that different jurisdictions have different ways of calculating the share or compensation to be collected. It is agreed that section 244 and 245 of the Mines and Minerals Act, is the parent Act which obligates the miner of a registered mine to pay royalties. It is then the Finance Act in its section 37 and the Schedule to Chapter VII which sets out how such royalties are to be calculated as it provides the rates of levying royalties for each of the minerals,” Zimra said argued.

Sections 244 and 245 of the Mines and Mineral Act and section 37 of the Finance Act determine the calculation of royalties.

Section 244 (1) says: “Subject to this Part, a miner of a registered mining location shall pay royalty on all minerals or mineral bearing products won from such location which have been disposed of by him or on his behalf, whether within or outside Zimbabwe rate per unit of mass as may be fixed in terms of section two hundred and forty-five.” “1. Section 245 (Royalties) Percentage of market value of mineral produced. (a) Precious Stones 10, (b) Precious metals 3.5, (c) Industrial metals 2 …” – (News Hawks)

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