Protecting the rights of communities and conserving the environment and natural resources

Blog: Corruption

Anjin Return? An Acid Test For The New Dispensation

In the rear-view mirror of Zimbabwe’s political and socio-economic narrative, Mugabe image looms large. But is the windshield clear enough for accelerated progress? One important clue which can help to unravel this puzzle relates to how the new government is managing the country’s mineral wealth- platinum, diamonds, lithium and gold among others.

Of all minerals, developments in the diamond sector warrants a close examination. This is hardly surprising though. Diamonds, because of their characteristics, items of high value which are easy to carry makes the stones attractive to criminals. Money laundering risk exposure in the trade of diamonds is well articulated by the 2013 Financial Action Task Force (FATF) report .

Early this year, the blog I wrote on mineral revenue transparency reforms: priorities for the new government made an interesting analogy centred on 2017 “Operation Restore Legacy” and 2008 “0peration Hakudzokwi” (no return to artisanal mining) in Marange. In both instances, the army moved in to restore order. In the end, the army gained significant stake in diamond mining and government. The army had a 40% stake in one of the biggest diamond mining companies operating in Marange, Anjin diamonds. The remaining stake was owned by Anhui Foreign Economic Construction (Group) Co Ltd (Afec) from China and 10% stake owned by Zimbabwe Mining Development Company (ZMDC).

Unarguably, the army’s involvement in Marange did not deliver any tangible development outcome, the $100 million defence college being the only exception. Likewise, the army gained key positions in the new government. Key office positions among other include the offices of the vice president, minister of agriculture and minister of foreign affairs and trade.

The history of Anjin’s diamond mining activities is quite murky. From the Auditor General’s 2011 report, it can be gleaned ZMDC was not committed to recover money from the proceeds of disposing 40% equity in Anjin to the army. In her 2016 report, the Auditor General failed to verify Anjin’s diamond earnings because the company could not avail its audited books. During the peak period diamond exports by value and volume, in 2012,  the former Minister of Finance, Tendai Biti singled out Anjin for not paying taxes. Zimbabwe exported 14,957,648.98 carats worthy $740,998,088.16 in 2012 according to Kimberly Process public statistics.  In July 2017, the Independent Newspaper reported that Chinese investors syphoned US$255 million from Anjin.

Arguing that the nation was not fairly benefiting from her rich Marange alluvial diamonds, easy pickings, not so difficult to mine, government decided to consolidate the diamond mines in 2015. A process made easy because of the expired mining rights for all the seven diamond mining companies that operated in Marange. Government then saw it fit not to renew the expired mining rights. All this was done under the former Minister of Mines, Chidhakwa.

Some argued that the move was to constrain the Lacoste faction that was deemed to be profiting from Marange diamonds through the army’s involvement. Lacoste was a ZANU PF faction allegedly led by Mnangagwa which was backed by the army and war veterans that was contesting with the G40 faction backed by the first lady, Grace Mugabe, to take over from Mugabe.

Chidhakwa, however, maintained that the main objective of forming ZCDC was to bring transparency and accountability in the management of Marange diamonds. That said, the objective was tainted by poor corporate governance as the Ministry of Mines through its former Permanent Secretary, Francis Gudyanga, baby seated state owned enterprise-ZCDC as the chairman of the ZCDC board.

On 20 April 2018, the Zimbabwe Environmental Law Association (ZELA) accompanied EU Ambassadors during their field visit to ZCDC diamond mining operations in Marange. One interesting observation was the fresh fence erected on Anjin diamond’s concession, air strip clearance and the presence of the Chinese on the ground.  A worrisome development. Is Anjin coming back?

A colleague and mentor Shamiso Mtisi remarked that the involvement of the army in business is not a challenge. In other countries, for instance the army is an active player in the economy. What matters is a strong dosage of transparency and accountability which is critical to deliver benefits to citizens and not to a few powerful individuals.

To win public trust and confidence, government must move with speed to align mining legislation with Section 315 (2) (c) of the Constitution to deliver transparency and accountability in the negotiation of mining contracts as well as performance monitoring of the mining contracts. In addition, government must urgently embrace the Extractive Industry Transparency Initiative (EITI) to enable the public to track various taxes paid to government institutions by mining companies. Transparency and accountability reforms in the mining sector are a key indicators to whether government is committed to curb corruption, to abide by the Constitution and to leverage the country’s abundant mineral wealth for socio-economic turnaround.

Is RBZ’s Gold Mobilisation Fund a Jack Pot for Artisanal and Small-Scale Miners?


Gold from Mberengwa

“Most beneficiaries are not aware that $74 million was disbursed in 2017 and that the funding has been doubled to $150 million in 2018. Furthermore, there is need for awareness raising on issue of collateral, especially acceptance of cattle as collateral security” Themba Sibanda, Zimbabwe Miners Federation organising secretary
Faced with severe foreign currency shortages, the Reserve Bank of Zimbabwe (RBZ) is banking on the propulsive role gold to drive export earnings. In its 5-year plan, RBZ has a target to produce 30 tonnes of gold annually by 2020 (2015 Monetary Policy Statement). Previous peak gold production was 27 tonnes, produced in 1999, at a time when contribution from Artisanal and Small-Scale Mining (ASM) was meagre, around 5%. As part of the measures to boost gold production, RBZ identified the need to harness the potential of ASM by funding mechanisation of small scale mining. Through the 2018 Monetary Policy Statement (MPs), RBZ announced that ASM gold sector funding has been doubled to $150 million. The same MPS revealed that in 2017, $74 million was disbursed to 255 small scale miners. Remarkably, last year (2017), ASM gold production surpassed that of large scale producers, accounting for 53% of the total gold production: 24,843.87kgs. Along with the “no questions asked policy” on gold deliveries to Fidelity Printers and Refineries (FPR), gold mobilisation fund is credited for boosting gold production in the ASM sector.
Find below some basic facts in numbers that can help to answer whether increased funding by RBZ to the ASM gold sector is a jack pot for miners: an analysis of the 2018 Monetary Policy Statement;

  • 1 symbolises that RBZ through FPR is the sole gold buyer and exporter in Zimbabwe
  • $74 million was disbursed to small scale miners in 2017 255 small scale miners benefited from $74 million disbursed in 2017
  • The number of women who benefited from the RBZ’s loan facilities is not known as the number of beneficiaries is not disaggregated to show how many women and men benefited from the facility
  • There are about 10,000 registered small-scale miners in the country according to Zimbabwe Miners Federation (ZMF). Percentage wise, RBZ fund was accessed by 2.5% of the registered small-scale miners.
  • Averagely each miner got around $290,000 from the $74 million disbursed by RBZ to 255 small scale miners.
  • 2,960 is the number of small scale miners that would have received support from the RBZ since most small-scale miners need around $25,000 to mechanise their operations. Basic equipment includes a compressor, jack hammer, generator, small hammer mill and a water pump.
  • $75 million is supposed to be received by women in ASM gold sector If RBZ comply with constitutional requirement, Section 13 (3) to afford women equal development opportunities, because $150 million funding is earmarked for 2018.
  • The number of opportunistic investors who shifted into gold mining to take advantage of the loan facility is not known as beneficial ownership of the loans was not disclosed. The risk being that some businesses which benefited from the loan could be driving illicit financial flows by illegal using gold as a currency to finance their imports due to foreign currency shortages.
  • No amount has been set side to encourage rehabilitation and closure of gold mines. Much as the nation experts to benefit from increased gold production by earning much needed foreign currency, generation of jobs and incomes, environmental challenges should not be a blind spot. Innovation is needed, for instance, the conversion of 10% export incentive scheme to a fund that can be used to incentivise mine rehabilitation.
  • $150,000 is the value of equipment support given to Zvishavane-Mbrengwa small scale miners association in 2015 by Mimosa Mines’ corporate social investments. Can RBZ take a leaf from this and help to strengthen small scale miners’ associations who are critical players to formalisation of the ASM sector through self-regulation.

An Analysis of 2018 national budget statement: a mineral resource governance view point

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If you want to know government’s priorities, don’t be swayed by eloquent speeches from politicians, take a close look at the budget. Plans on how government intends to generate, allocate and spend public revenue in a manner that can hurt or protect the poor are revealed publicly. As Zimbabwe is endowed with abundant mineral wealth, a depletable public asset, it is critical to scrutinise the budget to see how government is leveraging mineral assets to promote broad based socio-economic development. After all, the theme for the Annual Pre-Budget Seminar, 08-12 November 2017, held at Elephant Hills, Victoria Falls was “Consolidation of Economic Development and Transformation Through Domestic Resource Mobilisation and Utilisation.”

As a member of the Tax Justice Network Africa, the Zimbabwe Environmental Law Association (ZELA), a lead organisation on mineral resource governance at national and regional level, has strong interest in the 2018 national budget statement, themed “Towards a New Economic Order.” A pregnant theme that induces excitement and apprehension at the same time. Change by nature can result in opportunities for progression or threats for regression.  So, what can we learn about development opportunities or threats from the 2018 national budget statement through a mineral resource governance perspective?

Curbing corruption and rent seeking behaviour in the mining sector

The budget missed the opportunity to embrace mineral revenue transparency best practice like the Extractive Industry Transparency Industry (EITI) to fight corruption and rent seeking behaviour in the mining sector. Mining agreements should be made public, including payments made to various government institutions by mining companies and beneficial owners of mining activities. For a government that prides itself on having strong political will to fight corruption, it is regrettable that an opportunity was squandered to help exorcise the ghost of “missing $15 billion” Marange diamond revenue.

By making public mining agreements, citizens can pressure government and mining companies to sign good deals that avoid skewing mining benefits in favour of corrupt public officials and corporates. Disclosure of various payments made to government institutions gives citizens the power to follow the money to hold to account government institutions on service delivery. As an example, through Caledonia’s Extractive Sector Transparency Measures Act (ESTMA) report, taxes paid to Gwanda Rural District Council (GRDC), Rural Electrification Agency, Ministry of Mines and ZIMRA are publicly disclosed.

 Platinum royalty rate reduced from 10% to 2.5%

The budget stated that Special Mining Lease Agreements (SMLAs) provide for a 2.5% royalty rate for some group of Platinum Group of Metals (PGMs) mining companies. Unfortunately, the budget masked the beneficiary mining companies of this fiscal arrangements which undermines the Public Financial Management Act (PFMA) prescribed PGMs royalty rates-platinum 10%, other precious metals 4%-palladium, rhodium, ruthenium, iridium, and osmium, and 2% for base metals like nickel.

To enhance fair competition amongst platinum miners, the budget slashed platinum royalty rate to 2.5% until August 2019. The budget failed to explain why August 2019. However, from Zimplats’ 2017 integrated report, we can learn that the company’s SMLA expires in August 2019. Thereafter, it can be renewed for two periods of 10 years each. The budget left the public in suspense on what will happen after August 2019.  Is government going to continue with tax incentives for PGMs mining houses or not.

If not managed well, tax incentives can be harmful as noted by the blog- Disputes expose poor mining agreements. In 2015, Zimbabwe Revenue Authority (ZIMRA)’s annual revenue performance report revealed massive cost of the 2.5% royalty rate provided by SMLA to the public purse.

2015 ZIMRA Fiscal hole

By making PGMs houses pay 2.5% royalty rates, it means that government has forgone mineral royalties from the exploitation of PGMs since there is a 2.5% export incentive scheme for mineral export earnings. Zimplats received a $14 million export incentive from 1 July 2016 to 30 June 2017 according to the company’s 2017 integrated report.

It is vital to note that the reduction of platinum royalty rate is the last point in the budget. This raises some eyebrows as to the involvement of the new Minister of Mines and Mining Development, Winston Chitando, formerly Mimosa platinum mine’ executive chairman. Mimosa mine is the only producing platinum mine which was not enjoying the preferential royalty rate since it is not a holder of a SMLA. Notably, it was unfair for Mimosa platinum mine to continue paying a 10% royalty rate whilst other platinum mines were enjoying a 2.5% preferential royalty rate. Government was supposed to renegotiate with PGMs houses with SMLA to comply with the 10% royalty rate prescribed by the PFMA instead of slashing the royalty rates to 2.5%.

Export tax to promote mineral value addition and beneficiation

To optimise benefits from mineral wealth extraction, value addition and beneficiation of mineral is critical. Interestingly the budget gave an example of lithium concentrate with a grading of 5 to 6% lithium oxide through off take agreements for US$600 per tonne. When beneficiated, resultant lithium carbonate is sold at prices ranging from US$15,000 to US$20,000 per tonne. From this example, by exporting raw minerals, the country is forgoing foreign currency earnings, tax revenue, domestic investment finance and jobs.

In 2015 government introduced 15% export on raw platinum export to encourage beneficiation and value addition. The export tax was suspended until December 2017 to allow PGMs players to implement agreed plans with government as detailed below.

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The 15% export incentive scheme failed to reward progressivity in beneficiation and value addition of PGMs. For example, Zimplats which exports platinum matte was treated the same as entities exporting platinum concentrates. By promoting a progressive export tax regime, the 2018 national budget statement made a commendable step. However, the sharp drop of export tax from 15% threshold to 5% may not be warranted.

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Another commendable move is that export tax on raw mineral exports was extended to lithium and black granite with effect from 1 January 2019. The export tax on black granite is progressive as shown below.

Dimensional Stone Uncut Cut only Cut and polished
Export Tax (%) 5 2.5 0

Export tax on gross value of exported lithium was pegged at 5%,

Review of mining fees and charges

Ground rental fee applicable to diamond concessions was reviewed from US$3,000 to $225 per hectare per annum. The review of mining fees and charges was only limited to the diamond sector. Artisanal and small-scale gold miners who demanded the review of fees for several permits required in the mining sector like prospecting license ($200), explosives purchase permit ($500), and explosives storage permit ($500) among others.

It is interesting to note that government has strong interest in vast Marange diamond fields through the Zimbabwe Consolidated Diamond Company (ZCDC). This brings to attention the issue of how government is handling conflicting objectives as a regulator and a player. The review of ground diamond ground rental fees could have been motivated by the desire to give ZCDC a life line.

Artisanal and Small-Scale Gold Output Surpasses Output of Primary Gold Producers

17,163 kilograms of gold were delivered to Fidelity Printers and Refineries (FPR) between January and September 2017. Artisanal and Small-Scale Gold Mining (ASGM) accounted for 51% share of the total gold deliveries in the same period. According the budget, ASGM production was boosted by government interventions like $40 million gold mobilisation fund and efforts to plug revenue leakages through joint compliance monitoring.

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In light of the significant contribution of ASGM to the economy, it is unfortunate that the budget failed to respond to the key asks of many players in the ASGM sector as noted during the public pre-budget consultations held by PPCME in Bubi, Zvishavane and Mutoko districts. ASGM players want government to subsidise the costs of exploration by purchasing drilling rigs; to reduce the costs of multiple permits that criminalises a source of livelihood for 500,000 direct beneficiaries and 3 million indirect beneficiaries of ASGM; and to promote mechanisation of ASGM operations.

Indigenisation now restricted to platinum and diamond sector

The 51/49 indigenisation threshold in the extractive sector is now applicable only to the diamond and platinum sectors. Perhaps this came as an admission that the indigenisation scheme has failed to work seeing that only one company, Caledonia’ Blanket mine is fully compliant with the indigenisation model. To date, only 2 out of 61 community share ownership trust received share certificates.

The analysis of Zimplats’ 2017 integrated report: 11 things CSOs can learn makes an interesting observation concerning what to expect if the company is fully indigenised.

Zimplats indeigenisation analysis

Thin capitalisation redefined

To promote investments considering the prevailing liquidity challenges, the budget redefined thin capitalisation to exclude locally contracted debt in the determination of debt equity ratio (3:1) prescribed by the Income Tax Act. The arm’s length principle applies. Meaning there are safeguards on paper to manage abuse through related party transaction.  Interest accrued on debt element above the debt equity ratio is not an allowable deduction for the purposes of calculating taxable income.

When a company prefers to fund its activities through debt than owners’ equity, it leads to thin capitalisation. If not managed well, thin capitalisation erodes taxable income. Instead of investing owners’ equity to earn dividends, owners can make use related party transactions to fund their operations through debt to earn interest whether the company is profitable or not.

Expanding the scope of institutions to be audited by the Auditor General

The Auditor General’s 2016 report on state owned enterprise highlighted the challenges faced in terms of acquiring audited financial statement for Anjin to verify gross annual diamond sales used to compute depleting fees. By proposing expanding the scope of work of the Auditor General in the PFMA in line with Section 309 (2) (b) of the Constitution, to include government controlled entities like Anjin, there is scope for greater transparency and accountability in the management of mineral revenue. According to the 2012 annual report of the Zimbabwe Mining Development Corporation (ZMDC), the corporation has 10% shareholding in Anjin, while Chinese firm Anhui Foreign Economic Construction Company owns 50% and the remainder is owned by the government. However, it is strongly suspected that Zimbabwe Defense Industries (ZDI) owns the mystery 40% shareholding in Anjin.

Conclusion 

In a nutshell, during the pre-budget consultations, ZELA made its written submission to Parliament, particularly the Portfolio Committee on Mines and Mines and Energy titled 2018 National Budget Expectations: The Quest to Make Mineral Wealth Work for All: African Mining Vision (AMV). Main issues that ZELA raised include; adoption or adaption of the Extractive Industry Transparency Initiative (EITI), resources for the mining computerised title, exploration and mechanisation support for  ASGM amongst others. ASGM players also made their contributions during the budget consultations mainly on exorbitant fees for multiple permits which are criminalising their livelihoods. It is sad that feedback from the budget on outcomes of the public consultations is lacking. Whilst input of large scale investors has a significant footprint in the budget like tax incentives, and the review of the indigenisation policy. FDI is needed to turnaround the economy particularly the capital-intensive mining sector. However, there is need for a policy mix that attracts FDI and mobilising much needed domestic finance for development.

Engaging Government on Tax Justice, Illicit Financial Flows and Open Data

ZAMI Breakfast meeting

A post dialogue meeting to the 6th edition of the Zimbabwe Alternative Mining Indaba (ZAMI) was held at the Meikles hotel on 07 November 2017. This was a jump start to a series of reflective conversations on ZAMI 2017 Action Agenda that will be jointly facilitated by ZAMI organisers to reach out to key government institutions, business players, Civil Society Organisations (CSO), media and communities.  Primarily, the planned reflective conversations are meant drill down deeper on specific ZAMI Action Agenda items, to influence policy and practice reforms tailored to make mineral resources work for all Zimbabweans. A daunting challenge considering the recent resource curse that struck with discovery and subsequent exploitation of Marange diamonds. Roughly $15 billion was lost according to the President available here.

ZAMI organising team comprises Zimbabwe Council of Churches (ZCC), Zimbabwe Environmental Law Association (ZELA), and Zimbabwe Coalition on Debt and Development. Evidently, ZAMI is not an event but a process that involves district and provincial indabas and a series of policy dialogue meetings at local, national and international level.

The inaugural reflective conversation zeroed in on Tax Justice, Illicit Financial Flows and Use of Open Data to Promote Transparency and Accountability Action Agenda available here. This reflective conversation specifically dovetails with African Mining Vision (AMV) goal which seeks “to create a sustainable and well-governed mining sector that effectively garners and deploys resource rents and contributes to broad-based growth and development.”

Ministry of Finance and Economic Development (MOFED) and the Zimbabwe Revenue Authority (ZIMRA) were the primary stakeholders represented respectively by Melusi Tshuma, an economist and the acting Commissioner General, Happias Kuzvinzwa. Other participants comprised of representatives from Zimbabwe Council of Churches (ZCC), a faith based organisation, CSOs, government representatives from Ministry of Agriculture and Mechanisation and Ministry of Small to Medium Enterprises. Altogether, the meeting was attended by 26 people.

Janet Mudzviti of ZIMCODD facilitated this reflective conversation that was held as a breakfast meeting and she shared the ZAMI journey. ZAMI is a domesticated version of the regional Alternative Mining Indaba (AMI) that takes place yearly in Cape Town, South Africa since 2010. It is a parallel process to the regional Mining Indaba that is investor focused. The AMI created an alternative space for resource rich communities to engage with government and business. She emphasised that ZAMI is not  just about mining but broad based socio-economic development as per the African Mining Vision.

Veronica Zano of ZELA shared ZAMI’s main achievements. Ever since the inaugural ZAMI in 2012, the national multi-stakeholder dialogue meetings on mineral resource governance have been successfully organised annually. This year’s national dialogue meeting was the 6th edition of the ZAMI. Multi-stakeholders’ participation during the ZAMI has grown from strength to strength as evidenced by contributions from key government Ministries, Departments and Agencies(MDAs). Ministry of Mines, ZIMRA, Environmental Management Agency (EMA) and resource rich local governments among others. Business participation through the likes of Zimbabwe Platinum Mines (Zimplats) has been remarkable.

Parliament and independent commissions such as the Zimbabwe Human Rights Commission (ZHRC) are very supportive. Unarguably, one of the major success stories of the ZAMI is the creation of space for mining impacted communities interact with and ask hard questions to relevant government MDAs on challenges they are facing from mining activities. Malvern Mudiwa of Marange Development Trust (MDT), for instance, got a chance to ask the Minister of Mines, Oliver Chidhakwa, on what measures are in place to ensure that the Zimbabwe Consolidated Diamond Mining Company (ZCDC), a state-owned company, contributes a fair share of taxes to Mutare Rural District Council (RDC). ZCDC took over from the 7 diamond mining companies operating in Marange that were barely contributing local taxes to Mutare RDC. ZAMI is no longer an annual event, feeder events such as provincial and district level alternative mining indabas are being held. The ongoing reflective conversations to raise awareness and push for the implementation of the ZAMI Action Agenda evinces the maturation of ZAMI as a process.

Reverend Samuel V Sifelani of ZCC gave a profound and clear presentation on the role of the church in natural resource governance in Zimbabwe available here. Predominantly, Zimbabweans are Christians. Therefore, the church leverages on its huge following to discuss mineral resource governance challenges such as the “resource curse.” He quoted Psalm 140:12 and Proverbs 12:23 “I know that the LORD secures justice for the poor and upholds the cause of the needy.”

Mukasiri Sibanda with ZELA led the conversation on ZAMI 2017 Action Agenda. Some of the major taking points on the Tax Justice, Illicit Financial Flows and Use of Open Data to Promote Transparency and Accountability are highlighted below;

  • The national budget and the revenue performance reports produced by the Treasury and the Zimbabwe Revenue Authority (ZIMRA) should align with international best practice on mineral revenue transparency like the Extractive Industry Transparency Initiative (EITI) . This means that mineral revenue contribution to the national purse should be specifically disclosed under each revenue head like Corporate Income Tax (CIT), Pay As You Earn (PAYE), customs duty, withholding taxes and royalties among others.

This requirement is not too much to ask as data on payments made various government institutions by Caledonia’s Blanket Mine is available courtesy of Canadian Extractive Sectors Transparency Measures Act (ESTMA) report available here. A requirement under the Toronto Stock Exchange (TSX).  Likewise, data on payments made to government by Anglo-American owned Unki mine is public accessible because of the EU mandatory disclosures for listed companies in the extractive sector. Further details on budget transparency available here and tax transparency available here.

Melusi responded that MOF has the data on mining contribution per revenue head.  However, there is need to review the current budget reporting framework to ensure public disclosure of mining contribution per revenue head. Further, Melusi utged CSOs to work with Zimbabwe National Statistics Office (Zimstat) on best practice pertain to government information disclosure. He also urged CSOs to make use of public pre-budget consultations to give their input on national budget. ZELA’s response was that it made written submissions on the 2018 budget public consultations through the Parliament Portfolio Committee on Mines and Energy and Parliament Portfolio Committee on Finance and Economic Development.

  • To fulfil their mandate on Domestic Resource Mobilisation (DRM), both MOFED and ZIMRA should push for open contracts in Zimbabwe which mitigates the risks of corruption and poor mining deals available here. Open contracting in the minerals and mining sector is provided for under Section 315 subsection 2 (c). Melusi’s commented that MOFED and ZIMRA only implement the fiscal side of Mining Agreements (MAs). Multiple Ministries are involved in the negotiation of Mining agreements. Therefore, disclosure of MAs needs requires engagement with multi government MDAs.
  • MOFED and ZIMRA should both disclose tax incentives which are off budget expenditures in nature and a cost to the national purse. This will allow the public to do a cost benefit analysis to sniff out harmful tax incentives and hold government and corporates to account on bad deals like stabilisation clauses. Basically, stabilisation clauses restrict government’s ability to flexibilise its tax rates to capture a fair share of revenue during community price booms. Melusi responded by saying the tax incentives given to investors are a matter of public record as detailed by the Income Tax Act (Chapter 23:06) and ZIMRA’s website available here. In response, ZELA explained that it refers to the actual amount of revenue forgone due to tax incentives. ZIMRA’s acting Commissioner General urged CSOs to engage ZIMSTAT on this issue. Tatenda Mombeyara of Trust Africa remarked that ZIMRA and MOFED should also raise issues discussed here with their counterparts in government like the ZIMSTAT.
  • On progressive tax regimes, Melusi and Kuzvinzwa explained that government has a progressive tax regime. A case in point involves PAYE, the more salary you earn the more taxes you pay. In addition, Kuzvinzwa asked for more conversation to understand what CSOs mean when they imply that they want government to adopt a progressive tax regime. Judith Kaulem of Poverty Reduction Forum Trust (PFRT) opined that whilst government’s taxes on paper are progressive, in practice this may not be the case. The ZAMI discussion during the Tax Justice session revealed that individuals were the highest tax contributors through VAT and PAYE whilst CIT contribution to the treasury is meagre.

Revenue perfomance reports.PNG

Extracted from ZIMRA’s 2016 annual revenue performance report, available here

  • The 2018 budget must support government institutions to give better services to the mining sector. As an example, a computerised mining title system, a mining cadastre is not operational as the Ministry of Mines allege that there are no adequate resources to roll out the programme. Melusi of MOFED disclosed that the Ministry of Mines and Mining Development included resources for the mining cadastre in their request to Treasury and the 2018 national budget will allocate the required resources.
  • Sharing of the national generated between the national and local governments. The budget must meet the constitutional requirement to allocate at least 5% of national generated revenue to provincial and local governments in each fiscal year in line with Section 301 subsection (3). ZIMRA’s acting Commissioner General urged CSOs to work with local governments to ensure that public resources are channelled towards service delivery. Auditor General’s reports on local government have gory details of abuse of public resources available here. He agreed that the national budget must be aligned with the constitution.
  • The national budget should earmark a portion of other public funds linked with mining like the Rural Electrification Levy (REL) to finance service delivery for communities where such resources are generated. Section 13 subsection 4 of the Constitution directs the state to innovate to ensure that communities benefit from resources in their areas.  Miners are heavy contributors to the REL because they are huge consumers of electricity. In 2016, Blanket Mine paid REL amounting to $466,000. If 20% of the REL is ploughed back in Gwanda community, where Blanket Mine is located, it can contribute to improved rural electrification programme of Gwanda. The definition of Community Share Ownership Trusts (CSOTs) must be wider, to take advantage of the opportunities highlighted above. ZIMRA’s acting Commissioner General’s response was that CSOs should concentrate on pushing for beneficiation and value addition of minerals to ensure meaningful socio-economic benefits that can transform the lives of communities.
  •  Fiscal support should be given to the ASM sector on exploration costs to ensure sustainability and profitability of a sector key to earn the country much needed foreign currency. In addition, the ASM sector directly provides employment and income generation opportunities to 500,000 people.  CSOs should work with the ASM sector on formalisation since government struggles to fund resources to the informal sector according to ZIMRA’s acting Commissioner General. Judith Kaulem of PFRT contributed that its government’s responsibility to ensure that the ASM sector is formalised. The Mines and Minerals Act does not recognise artisanal mining.

 

The breakfast meeting ended with the consensus that more formal and informal conversations are needed with the MOFED and ZIMRA to advance tax justice, to fight IFFs and to promote open data for public accountability.  The facilitator, thanked the MOFED and ZIMRA for their time and contributions as well as other participants. Other future planned reflective conversation will be held focusing on ASM and the ease of doing business reforms: Exploring Opportunities to Empower Communities; Gender and Extractive: Women’s Bodies Violence and Extractivism; Natural Resources, Governance and Development; Towards Climate Justice in Zimbabwe;  Business and Human Rights: BRICS Investments; Investing in Local Communities: Interrogating Community Benefit Schemes; and Competing Land Use in Zimbabwe: Conflicting Between Mining and Other Land Uses in Zimbabwe.

Mutoko Warms Up To Africa Mining Vision

Concerned that the community in Mutoko is unhinged from the main economic activity in their locality, black granite mining, Mutoko Rural District Council (MRDC) supported by The Civic Forum on Human Development (CFHD), Silveira House and Zimbabwe Environmental Law Association (ZELA) organised a district alternative mining indaba. The indaba was held at Nyamakwere hotel, Mutoko centre from 13 to 15 June 2018.

Participants comprised of mining affected communities, Community Based Organisations (CBOs), Civil Society Organisations (CSOs) traditional chiefs, local government officials, Ministry of Mines, Zimbabwe Revenue Authority and Natural Stones- a mining company. Altogether, 95 people participated at the indaba, 22 women and 73 men. Here are five interesting things to note concerning the indaba.

Africa Mining Vision inspiring Mutoko community

Government is yet to hit top gear on implementation of the Africa Mining Vision (AMV), Mutoko community certainly view domestication of the AMV as a panacea to the resource curse. Realising that Africa should not continue to squander the opportunity to hinge development on her vast mineral wealth, the Union Heads of State and Government adopted the AMV in 2009. AMV envisages transparency, equity and the optimal development of mineral resources to underpin broad-based sustainable growth and socioeconomic development in Africa. Key talking points that enabled Mutoko community to warm up to AMV include the following;

AMV encourages government to acquire knowledge of the mineral wealth potential of the country to create better opportunities to optimally gain from the disposal of mineral rights. Areas known to have high mineral wealth potential should be sold through competitive bidding to choose a bidder who offers optimal development dividend, taxes, development of local supply chains, infrastructure, skills and technological transfer.

Mutoko community was deflated to know that the country’s mining regime uses the First In First Assessed (FIFA) principle to grant mineral rights, stifling space for competitive bidding. To acquire mineral rights based on FIFA principle, an investor pays $200 for a prospecting license, $300 to get a mining title and $100 annually to renew the mining title. An ordinary block of black granite mining covers 25 hectares.

To make Mutoko community relate better to the costs of acquiring black granite mining claims, the costs were converted to livestock-goats and cattle. It costs 6 goats to get a prospecting license, 1 cow to get a mining title and 3 goats, to renew the mining title. Clearly, Mutoko community can afford to own black granite mining titles in their area.

Taking a leaf from the recent government-Zimplats deal on the release of platinum claims, Mutoko community should press government to negotiate the release of black granite claims to Mutoko Community Share Ownership Trust (MCSOT). The trust will negotiate with potential investors through competitive bidding, a process that can create better local and economic development opportunity than the current scenario.

The above is a short to medium solution, ideally, the reform of the Mines and Minerals Act to accommodative competitive bidding for the award of mineral rights in areas with high mineral wealth potential is a necessity.

Mutoko Alternative Mining Indaba Unique and Refreshing

As the Alternative Mining Indaba (AMI) celebrates its 10th anniversary, Mutoko district AMI stands out among several AMI’s achievements. The AMI was created as a response to the regional Mining Indaba, a platform in Cape Town, South Africa, for investors and government officials to discuss investment opportunities and risks in Africa’s mining sector.

Disturbed by the fact that communities affected by mining activities did not have a seat at the table at the Mining Indaba, led by the Nowergian Church Aid, CSOs started the AMI movement in 2009 as an annual event. Zimbabwe started its national AMI in 2012 under the leadership of ZELA with support from Zimbabwe Council of Churches (ZCC) and Zimbabwe Coalition on Debt and Development (ZIMCODD).

In 2013, Zimbabwe scored a first by devolving AMI to provincial and local level. Mutoko local indaba is unique and refreshing in that it is driven by Mutoko RDC through partnership with CSOs. It is Mutoko RDCs that was at the forefront of inviting stakeholders and crafting the agenda, of course through a participatory approach. Hopefully, other resource rich RDCs will be inspired by Mutoko example to spread and strengthen the AMI movement.

Limited Transparency and Accountability of Corporate Social Responsibility Activities

Although mining companies in Zimbabwe are not legally compelled to practice Corporate Social Responsibility (CSR) activities, to gain and maintain a social license to operate, it is desirable for mining companies to contribute to local economic and social development programmes. It is disheartening to note that CSR activities carried out by black granite mining companies are barely transparent and prune to capture by corrupt politicians, government officials and traditional chiefs. One company bragged that it supports national events. For example, the entity donated 1,900 litres of fuel to the recent visit by the President to enable transportation of people from different places. The visit by the President was a ZANU PF campaign rally for 2018 national harmonised elections pencilled on 30 July 2018. This raises the risk of abuse of CSR activities to finance political campaigns. Corporates, therefore, can easily go into bed with politicians to suppress policy reform process that positions mining as a tool for development as envisaged by AMV.

Another development is that black granite mining companies in Mutoko are no longer enjoying the CSR expenditure allowances for mining companies provided under the Income Tax Act. Dr Muvhuro, the human resources director for Natural Stones argued that the changes came with the reclassification of black granite from a mineral to a quarry under the new Finance Act. It is important to know that only Natural Stones is visible on CSR activities, and the other companies such as Ilford, ZIQ, CRG, Quarrying Enterprise and Surewin are barely active.

Stakeholders at Mutoko indaba discussed and agreed that black granite mining companies should come up with a publicly known formula for determining their annual CSR budgets. Further, CSR should feed into the local development plans and targets set by the local authority in consultation with local stakeholders. However, there will be room to deviate from local development plans in case of emergence.

Fiscal Linkages

Section 276 (2) (b) give local authorities powers “to levy rates and taxes and generally to raise sufficient revenue for them to carry out their objects and responsibilities.” The Rural District Council Act gives resource rich local authority the power to collect local taxes from mining activities. In this regard, Mutoko RDC collects local taxes, $1 per tonne of black granite mined. $1 is equivalent to a loaf of bread. In 2017, Mutoko collected $160,000 from black granite mining activities.

Approximately, there are 164,000 people in Mutoko, meaning that mineral income per head amounts to $0.98 per annum. There is no transparency concerning production and marketing of black granite in Mutoko. Mutoko RDC suggested that having a weigh bridge would be beneficial to independently verify production figures. In addition, there is need to engage Minerals Marketing Corporation of Zimbabwe (MMCZ) to understand how the institution to understand black granite revenue, success and challenges concerning black granite marketing.

Also, it was discussed and agreed ZELA should look at the changes in the Finance Act to come up with legal advice on opportunities for Mutoko RDC to get royalties from black granite mining. Notably, before 1994, Mutoko RDC used to get royalties from black granite mining activities which were classified under quarrying helped to construct Mutoko high school, council offices and a commercial building in town.

Environmental concerns

Black granite miners are accused of causing water stress, water sources like streams, wells and boreholes are now drying up easily. Another challenge is dust pollution linked with haulage trucks that are operating in dust roads. Blasting activities are allegedly causing houses and schools to crack. Mining activities are also destroying cultural sites.

Mutoko RDC decried the fact that it has failed to access Environment Impact Assessment (EIA) documents from Environmental Management Agency (EMA) and the mining entities operating in Mutoko. ZELA should take legal action to stop mining companies from operating without EIAs and explore legal opportunities for challenging EIAs which were fraudulently done without proper public consultations.

$5 Million Payment to Marange-Zimunya Trust: What We Need To Know

This article was original featured in the Business Weekly

After a false start, for Marange-Zimunya Community Share Ownership Trust (CSOT), can the $5 million payment received from the Zimbabwe Diamond Consolidated (ZCDC) herald a new beginning for local economic and social development hinged on diamond mining activities? This is particularly so, considering that that revenue from Marange has been a toxic issue- the alleged missing $15 billion and dummy $50 million cheque for Marange Zimunya COST. Compellingly, a thorough examination of this latest development is a necessity to enhance better transparency and accountability in the management of mineral to bring into public limelight emerging opportunities and risks to enhance accountability.

By extending $5 million to Marange-Zimunya CSOT, ZCDC follows the footsteps of other large-scale miners especially in the platinum sector like Zimplats and Unki Mine who gave $10 million to CSOTs in their localities. That said, a year before the 2013 harmonised elections, a $50 million dummy check was handed to Marange-Zimunya CSOT which proved to be fool’s gold in the end. Unless, $5million paid to Marange-Zimunya is reflects in the organisation’s bank account, the past has taught us not to count our chicks before they are hatched.

 It is important to state that the softening of indigenisation laws have resulted in platinum and diamond sectors being the only ones to comply with 51% indigenous equity requirement. Ideally, ZCDC, a government owned entity, should have taken lead to cede 10% shares to Marange-Zimunya CSOT.

 As a player and regulator, government should lead by example on commitment to indigenisation. Perhaps this would have been a good sign that government is keen to compel diamond and platinum mining entities to cede 10% shares to CSOTs in their districts. Without shares, Marange-Zimunya CSOT will not be legally entitled to a share of profit generated by ZCDC. In the end, future payments if any to the CSOT will be voluntary and unpredictable.

Clarity is needed if the $5 million payment to Marange-Zimunya CSOT was an advance dividend, a dividend or donation. The fact that ZCDC’s audited financial statements are not publicly available, is a cause of concern. It is difficult to pick if ZCDC paid the $5 million out of its profits and whether the community received a fair share, 10% of ZCDC’s profits.

It is important for Marange-Zimunya CSOT to complement local development plans for Mutare Rural District Council (RDC). This will create synergies and manage the risk of CSOT expenditure being linked with political campaigns. Also, ZCDC should disclose how much local taxes the entity is paying to Mutare RDC to enhance local economic and social development. There is a risk that ZCDC may not be paying a fair share of local taxes to Mutare RDC and at the same time investing in public relations activities by paying Marange-Zimunya CSOT.  

Beyond the $5 million payment made to Marange-Zimunya CSOT, it is important for ZCDC and government to consider allocating claims for alluvial diamond mining. This is important because alluvial diamond mining is no longer economically viable for large scale mining, it makes sense to follow the African Mining Vision aspiration of promoting coexistence between artisanal and small-scale miners and large-scale miners. Zimbabwe can take a leaf from South Africa which has recently allocated mining claims to artisanal miners, the so called “zama zamas” which were operating illegal. If this is done, conflicts between ZCDC and illegal gold miners which are affecting peace in Marange will managed sustainably.

After a false start, for Marange-Zimunya Community Share Ownership Trust (CSOT), can the $5 million payment received from the Zimbabwe Diamond Consolidated (ZCDC) herald a new beginning for local economic and social development hinged on diamond mining activities? This is particularly so, considering that that revenue from Marange has been a toxic issue- the alleged missing $15 billion and dummy $50 million cheque for Marange Zimunya COST. Compellingly, a thorough examination of this latest development is a necessity to enhance better transparency and accountability in the management of mineral to bring into public limelight emerging opportunities and risks to enhance accountability.

By extending $5 million to Marange-Zimunya CSOT, ZCDC follows the footsteps of other large-scale miners especially in the platinum sector like Zimplats and Unki Mine who gave $10 million to CSOTs in their localities. That said, a year before the 2013 harmonised elections, a $50 million dummy check was handed to Marange-Zimunya CSOT which proved to be fool’s gold in the end. Unless, $5million paid to Marange-Zimunya is reflects in the organisation’s bank account, the past has taught us not to count our chicks before they are hatched.

 It is important to state that the softening of indigenisation laws have resulted in platinum and diamond sectors being the only ones to comply with 51% indigenous equity requirement. Ideally, ZCDC, a government owned entity, should have taken lead to cede 10% shares to Marange-Zimunya CSOT.

 As a player and regulator, government should lead by example on commitment to indigenisation. Perhaps this would have been a good sign that government is keen to compel diamond and platinum mining entities to cede 10% shares to CSOTs in their districts. Without shares, Marange-Zimunya CSOT will not be legally entitled to a share of profit generated by ZCDC. In the end, future payments if any to the CSOT will be voluntary and unpredictable.

Clarity is needed if the $5 million payment to Marange-Zimunya CSOT was an advance dividend, a dividend or donation. The fact that ZCDC’s audited financial statements are not publicly available, is a cause of concern. It is difficult to pick if ZCDC paid the $5 million out of its profits and whether the community received a fair share, 10% of ZCDC’s profits.

It is important for Marange-Zimunya CSOT to complement local development plans for Mutare Rural District Council (RDC). This will create synergies and manage the risk of CSOT expenditure being linked with political campaigns. Also, ZCDC should disclose how much local taxes the entity is paying to Mutare RDC to enhance local economic and social development. There is a risk that ZCDC may not be paying a fair share of local taxes to Mutare RDC and at the same time investing in public relations activities by paying Marange-Zimunya CSOT.  

Beyond the $5 million payment made to Marange-Zimunya CSOT, it is important for ZCDC and government to consider allocating claims for alluvial diamond mining. This is important because alluvial diamond mining is no longer economically viable for large scale mining, it makes sense to follow the African Mining Vision aspiration of promoting coexistence between artisanal and small-scale miners and large-scale miners. Zimbabwe can take a leaf from South Africa which has recently allocated mining claims to artisanal miners, the so called “zama zamas” which were operating illegal. If this is done, conflicts between ZCDC and illegal gold miners which are affecting peace in Marange will managed sustainably.

After a false start, for Marange-Zimunya Community Share Ownership Trust (CSOT), can the $5 million payment received from the Zimbabwe Diamond Consolidated (ZCDC) herald a new beginning for local economic and social development hinged on diamond mining activities? This is particularly so, considering that that revenue from Marange has been a toxic issue- the alleged missing $15 billion and dummy $50 million cheque for Marange Zimunya COST. Compellingly, a thorough examination of this latest development is a necessity to enhance better transparency and accountability in the management of mineral to bring into public limelight emerging opportunities and risks to enhance accountability.

By extending $5 million to Marange-Zimunya CSOT, ZCDC follows the footsteps of other large-scale miners especially in the platinum sector like Zimplats and Unki Mine who gave $10 million to CSOTs in their localities. That said, a year before the 2013 harmonised elections, a $50 million dummy check was handed to Marange-Zimunya CSOT which proved to be fool’s gold in the end. Unless, $5million paid to Marange-Zimunya is reflects in the organisation’s bank account, the past has taught us not to count our chicks before they are hatched.

 It is important to state that the softening of indigenisation laws have resulted in platinum and diamond sectors being the only ones to comply with 51% indigenous equity requirement. Ideally, ZCDC, a government owned entity, should have taken lead to cede 10% shares to Marange-Zimunya CSOT.

 As a player and regulator, government should lead by example on commitment to indigenisation. Perhaps this would have been a good sign that government is keen to compel diamond and platinum mining entities to cede 10% shares to CSOTs in their districts. Without shares, Marange-Zimunya CSOT will not be legally entitled to a share of profit generated by ZCDC. In the end, future payments if any to the CSOT will be voluntary and unpredictable.

Clarity is needed if the $5 million payment to Marange-Zimunya CSOT was an advance dividend, a dividend or donation. The fact that ZCDC’s audited financial statements are not publicly available, is a cause of concern. It is difficult to pick if ZCDC paid the $5 million out of its profits and whether the community received a fair share, 10% of ZCDC’s profits.

It is important for Marange-Zimunya CSOT to complement local development plans for Mutare Rural District Council (RDC). This will create synergies and manage the risk of CSOT expenditure being linked with political campaigns. Also, ZCDC should disclose how much local taxes the entity is paying to Mutare RDC to enhance local economic and social development. There is a risk that ZCDC may not be paying a fair share of local taxes to Mutare RDC and at the same time investing in public relations activities by paying Marange-Zimunya CSOT.  

Beyond the $5 million payment made to Marange-Zimunya CSOT, it is important for ZCDC and government to consider allocating claims for alluvial diamond mining. This is important because alluvial diamond mining is no longer economically viable for large scale mining, it makes sense to follow the African Mining Vision aspiration of promoting coexistence between artisanal and small-scale miners and large-scale miners. Zimbabwe can take a leaf from South Africa which has recently allocated mining claims to artisanal miners, the so called “zama zamas” which were operating illegal. If this is done, conflicts between ZCDC and illegal gold miners which are affecting peace in Marange will managed sustainably.

Marange diamond mining impacts are not limited to Marange and Zimunya areas. There is need to ensure that communities in Chimanimani and Buhera, who bear the brunt of mining impacts like pollution of Save and Odzi rivers should be left out on community benefit schemes from ZCDC.

Marange diamond mining impacts are not limited to Marange and Zimunya areas. There is need to ensure that communities in Chimanimani and Buhera, who bear the brunt of mining impacts like pollution of Save and Odzi rivers should be left out on community benefit schemes from ZCDC.

Marange diamond mining impacts are not limited to Marange and Zimunya areas. There is need to ensure that communities in Chimanimani and Buhera, who bear the brunt of mining impacts like pollution of Save and Odzi rivers should be left out on community benefit schemes from ZCDC.

Responsible Investments Campaign

 

1. Introduction
The Zimbabwe Environmental Law Association (ZELA) is running a PAVE (Petition, Amplify Voices and Engage) campaign on Responsible Investments. The aim of the campaign is to ensure that local communities from resource-rich areas meaningfully benefit from the extraction of the natural resources. The manifesto of the current government is prioritizing economic development through foreign direct investment(FDI). Indigenisation and Economic Empowerment Laws have been softened to improve Zimbabwe’s appeal to foreign investors. Whilst Zimbabwe is in need of FDI, there is a high likelihood that some of the investors may come from countries with poor human rights records. By emphasising on the issue of “Zimbabwe is open for business”, it is likely that the government may overlook issues of community beneficiation and violation of human rights in host communities. Against this background, ZELA’s campaign on Responsible Investments seeks to petition duty bearers, amplify community voices and engage duty bearers on responsible investment and human rights. ,

2. About the Campaign
The Responsible Investments campaign was launched in May 2018 during the Great Dyke Provincial Alternative Mining Indaba 2018. The campaign covers Zvishavane and Mutoko Districts. These areas are renown for extensive Chrome and Granite mining . ZELA’s PAVE campaign strategy gives power to the communities themselves to organise themselves and demand accountability from duty bearers .

3. Community members demands
The Zimbabwean government has entered into investment agreements with investors. One of the most talked about investment is the 4.2 Billion Platinum deal with Karo Resources . In light of the signing of investment agreements, host mining communities are calling for the following demands;

4.1. Mining Companies and Investors
• Invest in getting a social licence to operate. All mining companies must meaningfully engage communities from exploration to end of the mining project, respect human rights and cultural values of the communities and local employees, including exercising gender inclusion in all processes

4.2. The Environmental Management Agency
• Safeguard the environment and ensure funds for environmental rehabilitation are set aside and used for this purpose before, during and after mining operations.
• Provide easy access to environmental information to mining-affected communities so that they can easily monitor compliance with Environmental Management Plans.

4.3. Rural District Councils
• Enhance social service delivery from mining taxes and royalties and publish what you receive from mining companies

4.4. Government
• Disclose Mining contracts with the relevant stakeholders and meaningfully engage rural district councils and mining-affected communities along the mining cycle. Put in place laws and policies that promote local employment and local enterprise development and/or enforce these laws and policies where they exist.

4.5. The Zimbabwe Human Rights Commission
• Investigate and act accordingly on time on human rights violations reports received from mining-affected communities effectively harnessing all powers and authority within the confines of the Constitution and ZHRC Act.
• Enable ease of access to ZHRC reporting mechanisms throughout the country.
• Influence quick adoption of frameworks like the UN Guiding Principles on Business and Human Rights to contribute to improved economic, environmental and social justice

5. Notable Success
Since the campaign launch, the Government halted the mining of chrome on the road sides in Zvishavane. This was observed on the road linking Shurugwi and Zvishavane where chrome extraction was happening less than 10m away on either side of the tarred road.

6. To get involved
To get involved in the campaign, follow the hashtag #ResponsibleInv on Facebook and Twitter. We conducted radio interviews on Star FM. To listen to this recordings, follow the appended link. Please kindly visit our website and sign an online petition.

Radio Interviews: https://soundcloud.com/zela-information
Youtube Documentary: https://www.youtube.com/watch?v=G_cmxlprbX8&t=415s
Twitter Campaign:#ResponsibleInv
Photo Gallery: https://www.flickr.com/photos/142795511@N08/albums
Online Petition: https://www.ipetitions.com/petition/responsible-investments-campaign#.W5dhoMnljTQ.twitter

Tax Incentives Can Puncture Efforts to Revamp Public Service Delivery

Introduction

Cholera, the scourge currently haunting Zimbabwe is indicative of the sorry state of public service delivery – health, water and sanitation and education. A clear violation of socio-economic rights  provided in the Constitution. It is pertinent, therefore to focus on how government can mobilise finance to revamp public service delivery. Amidst measured excitement over government’s quest to re-engage with the West and the luring of Foreign Direct Investment (FDI), it should not be lost that tax is the most sustainable tool in government’s hands to finance development. Borrowing heavily from the debate that took place during a SADC regional workshop on Tax Justice in Mozambique from 10-13 September 2018, this article ventilates tax incentives – whether are detrimental or beneficial to development.

The Tax Justice workshop was organised by Action Aid (AA) Mozambique. It included other AA country organisations from Malawi, Tanzania, Zambia and Zimbabwe. The Zimbabwe Environmental Law Association (ZELA) also took part as a lead partner on Tax Justice with AA Zimbabwe. Tax Justice ensures more tax is raised fairly, allocated and spent equitable to ensure provision of essential public services.

Understanding tax incentives

Before delving into the discussion of how harmful or helpful tax incentives are, it is necessary to gain an understanding of what tax incentives are and the types of tax incentives offered in Zimbabwe. According to the Zimbabwe Revenue Authority (ZIMRA) “tax incentives are generally defined as fiscal measures that are used to attract local or foreign investment capital to certain economic activities or particular areas in a country.”  One can look at ZIMRA’s website to have an appreciation of tax incentives offered in Zimbabwe or refer to the Finance Act, the Income Tax Act and Double Taxation Agreements (DTAs).

Among tax incentives offered in Zimbabwe are; tax holidays – waiver to pay tax for a certain period, for example 5 years for Built Own Operate and Transfer (BOOT) infrastructure; 15% preferential corporate income tax for holders of special mining leases; all capital expenditure on exploration, development, operating incurred wholly and exclusively for mining operations is allowed in full; and perpetual carry over of mining losses. DTAs are tools used to avoid double taxing of the same income twice from the same entity or individual with investments in two countries concerned. DTAs can limit the capacity of our government to collect maximum taxes, for example, withholding tax on dividends.

Debate on Tax Incentives  

Proponents for tax incentives argues that, fiscal linkages although appear to be low hanging fruits from mining, they are not the only tool in the box for unlocking sustainable development. An effective mining tax regime must embrace desirable trade-offs between tax and other development drivers like transfer of technologies, skills development, enhanced supply chain capabilities, employment creation, export earnings and infrastructure development. Rightly so, ZIMRA acknowledges such attendant economic benefits accruable to a nation through using tax incentives.

Of course, ZIMRA is not blind to the fact that tax incentives are a cost to government in its interpretation. That is why a cost benefit analysis is critical always to ensure that government does not bear an unfair burden of tax discount in the bid to stimulate economic growth. Hence tax incentives must be publicly accounted for just like tax revenue. Unfortunately, ZIMRA does not publicly account for the costs incurred through tax incentives in its revenue performance reports, produced quarterly, semi-annually and annually.

Another shortfall is limited transparency of the amount of taxes received by government from mining operations. Apart from mining royalties, mining performance in other tax revenue heads like corporate income tax, custom duty, withholding taxes and Pay as You Earn (PAYE). A government eager to usher in a new dispensation must embrace international best practice like Extractive Industry Transparency Initiative (EITI) to keep citizens in the loop on mineral tax revenue performance.

Currently, what is clear for all citizens to see is that the budget size is thin. There is very little left to fund service delivery as 90% of revenue generated is sunk into recurrent expenditure. Yet citizens are not sure if the thinning effect is caused by excessive tax incentives. Mozambique is losing $400 million annually through tax incentives and Tanzania lost around $790 million in 2014/2015. Overgenerous tax incentives erode government funding for better schools, clinics, water and roads. Thereby worsening inequality and allowing corporates to enjoy public services that they are not willing to fairly pay for through taxes. A point that was well argued by critics.

Tax incentives if they are not aligned with what regional counterparts offers, they can easily stimulate a race to the bottom. Some scenario where regional countries, SADC for instance, compete to on lowering tax rates to attract FDI. SADC, interestingly, is in the process of formulating the Regional Mining Vison (RMV). ZELA is honoured to have led the participation of civil society from the region in this important process. One of the issues discussed in the RMV is harmonisation of tax incentives to stifle the race to the bottom.

However, if used well, tax incentives can spur inclusive sustainable development hanged on mining.  Power, for instance, a critical enabler to mining development is in short supply in Zimbabwe. To cover for the deficit, power is imported from Mozambique and South Africa. Therefore, if mining companies are given tax incentives to set up their own power stations, which will then feed excess electricity to the national grid. Ultimately, this promotes growth of other industries like agriculture and manufacturing – economic diversification.  The nation can stop importing electricity and ease the foreign currency crisis.

Critiques argued that in the mining sector, tax incentives rank list in influencing investment decision according to World bank report. Investors consider geological potential, ability to repatriate profits, political stability, policy consistency, infrastructure and labour among other factors. Fitly, in zones where the mineral wealth potential is very high, incentivising investors may not be ideal. Rather fiscal linkages, more tax revenue can be raised progressively by taking the competitive bidding route in the disposal of minerals.

Sadly, the Mines and Mineral Act is not aligned with AMV on harnessing competitive bidding to strengthen fiscal linkages. The Act relies on first in first assessed principle, even in zones where mineral wealth potential is high, the Great Dyke for example. Mineral rich countries must therefore invest in geological information to guarantee economic rationale in the disposal of mineral rights.

Further, critiques accused mining companies of cheating, using aggressive tax planning methods to avoid payment of taxes in jurisdictions where they are mining. A process known and Base Erosion and Profiting Shifting (BEPS) which weakens domestic capabilities to mobilise finance for development. Income is unfairly shifted to lower or free tax jurisdictions – Tax Havens. Government, therefore, must not give away freely its taxing rights to mitigate development revenue losses from illicit financial flows.

Wooing FDI is important but the nature of investment is critical to decipher whether it is in form of equity or loans.  FDI which comes inform of equity investment is preferable in that only dividend need to be repatriated. Whereas debt finance requires is costly in terms of repayment of loan interest in addition to dividends. When giving incentives, equity investment must have preference against investment financed by debt.

In Zimbabwe, the challenge is that mining deals are secretly negotiated even though the Constitution, Section 315 (2) (c) requires Parliament oversight in the negotiation and performance monitoring of mining agreements. Although the previous Parliamentary Portfolio Committee on Mines and Energy (PPME) did a sterling job to try to hold government accountable on management of Marange diamonds, Parliamentary scrutiny on several mega mining deals announced in the first half of 2018 was lacking.

Without Parliamentary scrutiny, there is a risk that bad deals with toxic incentives which can short change public service delivery. To illustrate, the ZIMRA refunded around $100 million in 2015 after losing a tax dispute on legality of stabilisation clause that pegged royalty rates at 2.5% for 25 years whilst ZIMRA argued for a rate of 10% prescribed by the tax code. Bad agreements are a result of either lack of poor technical skills to negotiate with corporates who can afford highly skilled technical persons.  or through corruption.  Mining benefits are skewed in favour of few well political well-connected persons and corporates.

Arguments against tax incentives in the mining sector were that, mining companies are chief culprits when it comes to eroding the tax base of resource rich countries by shifting profits mostly to secretive and tax free or lower tax jurisdiction – Tax havens. Therefore, government to give away freely their taxing rights to corporates that a bleeding resource rich Africa of its ability to use domestic resources to finance development.

Conclusion

To wind up, Zimbabwe’s desire attracts FDI to grow the mining sector as a leverage to achieve middle income status by 2030 need to be complemented by transparency and accountability of tax incentives. In its revenue performance report, ZIMRA must publicly disclose tax incentives, tax discount given to investors by government. This will enable citizens to assess the impact of tax incentives on funding service delivery programmes which reduce inequality – schools, hospitals, water and roads.

No room should be left for discretionary negotiation of tax incentives which undermine the country’s tax laws. As required by Section 315 (2) (c) of the Constitution, oversight in negotiation and performance monitoring of mining agreements must be a key priority for the 9th session.  Instead of allowing full recoupment of capital expenditure costs in the first year, government should spread capital recoupment over 4 years. Perpetual carry over of mining losses should be abolished. A period of 6 to 10 years can be ideal to allow carry over of mining losses. DTAs should be reviewed urgently to weed out clauses which weakens government’s fiscal capabilities.  Already, government softened indigenisation requirements in the mining sector, only platinum and diamond sectors are required to cede 51% equity to indigenous partners. Pressure, therefore should be less to unnecessarily give away the taxing rights through tax incentives.

SONA: Do I Smell A Breath of Fresh Air on Mineral Resource Governance Reforms?

Introduction

A country that is endowed with diverse and significant mineral wealth is crippled socio-economically. Cholera outbreak – a mediaeval disease, severe foreign currency shortages, inferior tax revenue inflows and high levels of corruption are all signs that mineral benefits are not shared with citizens. Several mining mega deals were sealed this year, yet the public is not aware whether the deals are good or bad for sustainable development. Hence the deep urge to scan the State of the Nation Address (SONA), for nuggets, if any, on mineral resource governance reforms which are critical to the reversal this curse. The SONA was delivered by the President on Tuesday, 18 September 2018, during the first session of the 9th Parliament of Zimbabwe.

Re-tabling of the Mines and Minerals Amendment Bill

For every long time, much needed reforms to the Mines and Mineral Act have proved to be elusive, even though the country’s socio-economic prospects are hinged on mining. This time around, the President signature was the missing link to give life to the Mines and Minerals Amendment Bill passed towards the end of the 8th Parliament. Seeing the inadequacy of the Mines and Mineral Amendment Bill, among other gaps, online registration of mining rights and titles, the Bill was referred to Parliament by the President. A massive opportunity for Government to comprehensively align the bill with Africa Mining Vision (AMV) and the Constitution, to harness mining for broad based socio-economic development.

One major issue which requires priority is the alignment of the Bill with Section 315 (2) (c) of the Constitution which requires Parliament oversight during negotiation and performance monitoring of mining contracts. Such a development will mitigate the risk of signing bad deals which do not yield a greater development dividend from mining – schools, hospitals, roads and industries. If government is serious about fighting corruption and to mobilise resources to deliver quality health and education services, a strong dosage of contract transparency is a necessity. All mega deals that were signed this year should be made public and Parliament oversight role should not be undermined.

Focus on small scale mining

It is noteworthy that the President highlighted that government will continue to support mechanisation of the small-scale mining sector to improve productivity. Government must go beyond mechanisation to support exploration which is the life blood of any mining activity. Ease of doing business reforms are necessary to ensure that small scale mining is not criminalised through huge compliance costs. For instance, $1,000 is required to get permits to purchase and store explosives. Attention should also be paid to artisanal miners to ensure a conducive policy and legal environment that recognise this important source of livelihood for many Zimbabweans. Over 500,000 are directly involved in artisanal mining. There is urgent need to curb wanton violence that seems to be the order of the day in artisanal and small scale gold mining.

Artisanal and small-scale miners are indispensable players in that they exploit resources that are not economically viable for large scale mining. Further, small scale mining offers opportunities for job creation, income generation and community enterprise development.

Curbing leakages of precious minerals

To curb the leakage of precious minerals, the Gold Trade Bill and the Precious Stones Trade Bill will be tabled before Parliament. Currently, the Minerals and Border Control Unit (MBCU) laments the fact that most smugglers of precious minerals are acquitted by the courts. This anomaly must be addressed by making the laws water tight. It is also crucial to align the Gold Trade Act with the Reserve Bank of Zimbabwe’s policy on buying gold on no questioned asked basis. Government, therefore, must work on a special permit for artisanal mining to ensure that artisanal mining is not criminalised. Another issue which deserves attention is the provision of incentives to whistle-blowers who provides credible information critical to stop the smuggling of precious minerals.

Broadening the range of minerals exploited

Boasting of over 40 known minerals that can be exploited economically, the drawback is that the country’s mineral performance is concentrated in a few minerals. Gold, platinum, chrome, diamonds and nickel account for 90% of the country’s export earnings. It is remarkable to note that the President acknowledged the importance of broadening the basket of minerals being exploited. A move fundamental to unleash mining potential to propel broad based socio-economic development. Naturally, high valued mineral easily grab the attention of policy makers because they rake in more export earnings and tax revenue. Yet, the so-called development minerals, which are low valued but with greater economic linkages are easily neglected. Development minerals are used in agriculture and construction sectors, phosphorous, limestone and iron among others.

Institute for Research, Innovation and Development

The Africa Mining Vision prioritises research, innovation and development to spur mining sector development. One of the main areas for research and innovation which deserves priority is clean technologies that efficiently substitute the use of mercury to recover gold. Ministry of Mines has projected that 100 tonnes of gold will be produced annually by 2023. This points to an impending disaster if government does not drive development of gold recovery solutions which eliminates mercury use. Mercury is dangerous to health and environment.

Conclusion

It is certainly encouraging that the President promised several reforms which have strong implications on mineral resource governance, a sweet smell. Hopefully, Parliament will move with speed, consult publicly with stakeholders and come up with resource governance laws that domesticate the aspirations of the Africa Mining Vision. Parliament oversight on negotiation of mining contracts as well as performance monitoring of mining contracts is a deal breaker. If this is not urgently done, fragile public trust in the new government will shatter.

Mining nuggets of development wisdom from an Artisanal and Small-Scale Miner

Mrs Ncube showing Farayi Mujeni her gold mining operation 

 

Introduction 

According to the Africa Mining Vison (AMV), Artisanal and Small-Scale Mining (ASM) is an integral part of mining.  The sector is critical for optimal exploitation of mineral resources because some deposits are not economically viable for large scale mining. Nuggets of development wisdom that can be mined from Mrs Ncube, a determined small-scale miner from Bubi district helps to explain why ASM sector is viewed positively by AMV. Mrs Ncube’s lived realities shows that the ASM sector is the silver lining that Zimbabweans must look closely when watching the dark socio-economic cloud engulfing Zimbabwe – scarce employment shortages, acute foreign currency shortages and unsustainable economic contribution from mining. Mrs Ncube’s experiences are an important encouragement to many women seeking to surmount impediments for women participation in ASM. Profiling voices of artisanal and small-scale miners is part of the Zimbabwe Environmental Law Association (ZELA)’s agenda to document and share experiences amongst peers and to inform policy makers on ASM levers for sustainable development.

Resource nationalism spirit evident in the ASM sector. Government has supported with primary resources, control of land for agriculture and minerals for mining. Of course, our challenge is access to capital and how to grow our entrepreneurial skills. We have a strong starting point though. Resource nationalism enhances community control of natural resources and it seeks to maximise community benefit from mining activities. It is heartening to know that artisanal mining is a reserved sector for indigenous people.

However, the principal mining legislation, the Mines and Minerals Act must be reformed to accommodate artisanal mining, a critical tool for enhancing equitable distribution of mining benefits. Government must not get carried away with announcing mega investment deals in the mining sector, the Constitution, Section 13 (4) requires the State to innovate and deliver optimal benefits to communities from the exploitation of resources in their localities. The softening of indigenisation and economic empowerment framework brings to fore the importance of empowering communities through ASM. Indigenisation, transfer of 51% shareholding to indigenous partners is now limited to diamond and platinum sectors only.

Reversing the trend on migration to South Africa – ASM a factor. Limited employment opportunities have forced Zimbabweans to migrate to South Africa in search for greener pastures. This trend is being reversed, to some extent, by employment and income generation opportunities linked to buoyant artisanal and small-scale gold mining. Mrs Ncube managed to woo her brother– a father of six, from South Africa who was doing landscaping to come and mange her mining business. His brother is paying school fees for his children. He managed to buy a housing stand in Bulawayo from Old mutual and a car as well. Altogether, Mrs Ncube employs fifty-eight people, of which ten trekked back from South Africa. The workers are not salaried. Instead, they have a production sharing agreement with the owner.

Diversification is key. Aware that mining is not a sustainable venture, Mrs Ncube have used proceeds from mining to invest in livestock – cattle, goats and pigs. The goats include a special breed called Kalahari red bought from South Africa. Mrs Ncube is also into chicken production. She constructed a modern fowl run with capacity to produce 1,000 birds at one go. Government must learn from Mrs Ncube’s efforts to diversify. Contributing more than 60% to the country’s export earnings, mining’s huge economic footprint is a deadly disease which can be cured by diversifying the economy.

Water linkages between mining and farming important to explore. Mrs Ncube’s mine is in a farm with very rich soils. Bubi is one of the driest region in Zimbabwe. Opportunities to carry out irrigation farming from dewatering done at Mrs Ncube’s mine. Command agriculture, with a mandate to boost food production through irrigation should explore water linkages between mining and farming. If successfully implemented, water linkages between ASM and farming can catalyse sustainable and integrated economic growth in Bubi rural district. Although ASM and farming are generally viewed in silos and from a conflict relationship, harnessing water linkages has potential to mitigate farmer-miner disputes through value co-creation.

Sponsors, key players behind increased ASM gold production. In as much as the Reserve Bank of Zimbabwe provides runs a substantially funded loan scheme to help mechanise ASM to boost gold production, individual sponsors are indispensable fanciers too. From 3.9 tonnes of gold out in 2014, ASM gold production ballooned to 19 tonnes between January and September 2018. RBZ credits this phenomenal growth to its funding. According to the 2017 Monetary Policy Statement, Fidelity Printers and Refineries (FPR) disburse $74 million to 255 individuals or entities. Considering that they are over 500,000 people directly involved in ASM, RBZ’s support is clearly benefiting a few. This vacuum is being filled by sponsors like Mrs Ncube, who work with gold mine owners and workers to provide machinery, inputs, food and protective clothing.

Mrs Ncube uses generators at her mine. This erodes profitability and it worsens ASM’s environment footprint. The rural electrification levy is a consumptive levy geared to promote equitable access to power, a vital socio-economic enabler. Large scale mining companies are huge consumers of electricity which makes them significant contributors to the rural electrification fund. A portion of this fund must be allocated to support access to sustainable and cheaper power for ASMers to boost their productivity.

The Alternative Mining Indaba Movement Is Unstoppable

The Alternative Mining Indaba Movement Is Unstoppable

Mukasiri Sibanda with ZELA unpacking AMV to participants at Mutoko district AMI

As the Alternative Mining Indaba (AMI) revs up to celebrate its 10th anniversary in 2019, Mutoko district AMI stands out amongst several achievements of the movement. Mutoko AMI stands out in that it was initiated by Mutoko Rural District Council, a marked departure from the norm where civil society organisations (CSOs) drive the process.

The indaba was held at Nyamakwere hotel, Mutoko centre from 13 to 15 June 2018. Participants comprised of mining affected communities, Community Based Organisations (CBOs), Civil Society Organisations (CSOs) traditional chiefs, local government officials, Ministry of Mines, Zimbabwe Revenue Authority and Natural Stones- a mining company. Altogether, 95 people participated at the indaba, 22 women and 73 men. Here are five interesting things to note concerning the indaba.

Mutoko RDC was at the forefront of inviting stakeholders and crafting the agenda, through a participatory approach which involved CSOs. Hopefully, other resource rich RDCs will be inspired by Mutoko’s example to spread and strengthen the AMI movement in all corners of the country.

ZELA and Mutoko RDC are going to engage the Association of Rural District Councils of Zimbabwe (ARDCZ) to motivate other resource rich RDCs adopt or adapt the AMI movement. As a result, communities affected by mining will get a fair opportunity to strongly participate in the management of mineral resources in their localities.

Interest in Mutoko’s AMI is compounded by the fact that whilst Government is yet to hit top gear on implementation of the Africa Mining Vision (AMV), Mutoko community certainly view domestication of the AMV as a panacea to the resource curse.

“We will certainly adapt AMV as a guide to Mutoko RDC’s development plan hinged on the extraction of black granite resources” Peter Sigauke, Mutoko RDC CEO.

As if that is not enough, other CSOs have joined the bandwagon. CSOs like the Civic Forum on Human Development (CFHD) and Silveira House joined hands with Zimbabwe Environmental Law Association (ZELA) to support Mutoko’s AMI. Before this, ZELA, Zimbabwe Coalition On Debt and Development (ZIMCODD) and Zimbabwe Council of Churches (ZCC) were the only players driving AMI movement in Zimbabwe which begun in 2012.

Citizens call for responsible investment

As we continue with our mandate of raising awareness among communities to assert and claim their environmental, economic, social and cultural rights within the natural resource and environmental sectors we decided to capture citizens’ voices through images. The month of February saw us touring resource rich communities in Zimbabwe where we captured the images that portray the grave injustices that have been brought about by mining investors. The 13th of March saw the organisation bringing together Chivi community members and local leaders for a Photo Voices Exhibition which was held at a community hall.

The pictures evidently illustrate that although Zimbabwe is endowed with vast mineral deposits, very little benefits have been realized. From the photo voices shooting it was revealed that host mining communities suffer environmental, socio-economic and cultural rights violations occasioned by state and non-state actors.

Currently, Zimbabwe’s mining sector is one of the major sectors of the economy that still has a large proportion of foreign ownership. However, while commonly presented as a sector providing development opportunities for the national government and local communities, mining has also been named ‘‘the evil sector’’ because of its projects that repeatedly trigger a cocktail of problems such as livelihood shifts, displacements from ancestral lands and insidious social, cultural, environmental, and economic changes. By its very nature, the mining industry, just like the oil and gas industries, leaves behind a ‘‘footprint’’ of environmental, social, and economic impact.
A case in point being Mutoko, Mutoko is located in the northeastern part of Zimbabwe. It lies within Mashonaland East Province and shares boundaries with Murewa, Mudzi, and Nyanga Districts. In terms of socio-economic development, Mutoko District is ranked among the ten least developed districts in Zimbabwe inspite of the proliferation of granite mining. Mutoko villagers despite living in the midst of the sought after precious granite stones which are in high demand in Europe and America are living in abject poverty. Mining in the community can be traced back to 1972 but the locals have nothing to show for it. According to the Global Press Journal, Mutoko granite was used in the construction of the $82 million Royal Danish Library in Copenhagen, Denmark, which measures 21 500m2. At least seven companies are extracting granite in the district. However, relations between some investors and the locals remain sour. The locals are blaming the companies for not protecting their social, economic and cultural rights. Sliced mountains, random cutting down of trees and water grabbing have left Mutoko district a living example of the ecological crisis bedeviling planet earth.
At least two families have lost their loved ones who fell into gullies left open by granite mining companies in the district. Granite extraction has also impacted their cultural beliefs and practices in ways that are detrimental to their well-being. In the Nyamutsahuni area, a Chinese company desecrated graves in search of the precious stone and for the locals this is unacceptable and totally against their cultural beliefs.
From the interviews conducted during the photo voices shooting, the perception amongst the locals has been the ineffectiveness of the local leadership in solving problems and controlling the actions of investors. Issues of corruption and political party allegiance also came under the spotlight. For the locals, citizen participation although legislated is not being put into consideration by the leaders. The lack of upward flows of information and citizen roles within the rest of the system gives little meaning to the notion of citizen participation in natural resource management and its governance.

Zimbabwe’s indigenous communities must fully benefit from the mineral resources. There is an emergent realization that mining could be a key instrument in establishing infrastructure for development. This is embodied in Africa’s Mining Vision (AMV) that contains important strategies for the maximization of the impact of mineral resources on growth and development. Many African countries do not have sustainable development principles in their national mining policies. Therefore, the AMV aims to achieve a “knowledge –driven African Mining sector that catalyses and contributes to the broad-based growth and development.

For the communities, policies must be suitably tailored to promote inter-generational equity in the mining sector. Without the necessary legal predicate, local communities in Zimbabwe will continue to suffer at the hands of mining companies. A mutually beneficial partnership between the state, the private sector, civil society, local communities and other stakeholders must be developed. Harnessing mineral resources for economic development and community empowerment is critical in addressing the poverty scourge and overally improving the quality of life for all Zimbabweans.
As ZELA, we are running the Responsible Investment campaign where we are calling on the Government of Zimbabwe, mining Companies and other duty bearers to ensure that mining operations are not violating the rights of local communities. To get involved in the campaign, follow the hashtag #ResponsibleInv on Facebook and Twitter. Please kindly follow the link https://www.ipetitions.com/petition/responsible-investments-campaign#.W5d and sign an online petition.

Steps To Curb Short Circuiting of Mining Fiscal Linkages

By Mukasiri Sibanda

Zimbabwe’s socio-economic development plan, the Transitional Stabilization Plan (TSP) is hinged on mining. This is not surprising because the country is endowed with world class mineral deposits in form of gold, platinum, lithium and chrome among others. Therefore, it is important for Parliament to increasingly hold more to account government and industry, on how mining fiscal linkages are leveraged to promote progressive realization socio-economic rights of citizens – health and education, for instance.
To help achieve this important milestone, the Zimbabwe Environmental Law Association (ZELA) facilitated a one-day workshop to upskill knowledge of Parliament Portfolio Committee on Budget, Finance and Economic Development on mining fiscal transparency challenges, opportunities and progress recorded. The workshop was held on Friday, 24 May at Cresta Lodge, Harare.
Community members from resource rich areas of Gwanda, Zvishavane and Mutare took part in the workshop. The Zimbabwe Revenue Authority (ZIMRA), the country’s tax administrators delivered a presentation on mining taxation, ZELA ventilated mineral revenue transparency and accountability issues, and PACT clarified linkages between mining and development.
Under listed are critical action points to enhance mining sector fiscal linkages, mainly for Parliament Portfolio Committee on Budget Finance and Economic Development
• Since 2011, government repeatedly made empty promises to implement the Extractive Industries Transparency Initiative (EITI) or its home-grown version, the Zimbabwe Mining Revenue Transparency Initiative (ZMRTI). EITI is a global best practice on mineral revenue transparency, which enables public scrutiny on mining sector and its contribution to development, tax revenue mainly. This time around, the Parliament must exercise its oversight role to ensure that the Ministry of Finance and Ministry of Mines come up with a clear EITI implementation which they will regularly monitor.
• Even though Section 34A (3a) of the Revenue Authority Act estops the Zimbabwe Revenue Authority (ZIMRA) from sharing client information on taxes, there is room for improvement to enhance mineral revenue transparency. For example, ZIMRA can disclose mining sector performance per each revenue head corporate income tax (CIT), withholding taxes, customs duty, value added tax (VAT), and Pay As You Earn (PAYE) among others. Further, disclosures can be disaggregated to show how major minerals like platinum, gold, diamonds and chrome performing per revenue head.
• Tax incentives are a discount on tax revenue and they must be publicly accounted for. ZIMRA’ tax revenue performance reports, therefore, must be refined to account for the cost of tax incentives. Creditably, the 2019 National Budget Statement recommended the development of “a tax incentive monitoring and evaluation framework to facilitate the management of timed tax expenditures as well as to inform Cost Benefit Analysis of tax expenditures by Treasury, on an annual basis, with effect from 1 January 2019.” Parliament must hold to account the Ministry of Finance and ZIMRA on how tax incentives are accounted for in line with policy position of the 2019 National Budget Statement.
• Parliament should follow up on Platinum royalties which were reduced by the 2018 FinanceAct from 10% to 2.5% to ensure that there is equal treatment for all players. The 2018 National Budget Statement which triggered this development promised that by August 2019, the platinum royalties will be reviewed. This is getting close and it is important for Parliament to ensure that platinum royalties are reviewed accordingly to maximise revenue flows to the treasury.
“Government entered into Special Mining Lease Agreements with some platinum group mining companies which provide for a specific royalty rate of 2.5%. 1107. However, platinum produced by mining companies that do not have a Special Mining Lease Agreement remained liable to a royalty rate of 10%, as provided for in the Finance Act. In line with the principles of equity and fairness in the taxation system, Government committed, in April 2017, to align the royalty rates to 2.5% as part of the 2018 Budget measures. The 2018 Budget, therefore, proposes to regularise royalty rates for platinum on all platinum group mining companies with effect from 1 April 2017, until August 2019.” 2019 National Budget Statement, Page 243 – 244.
• To ensure that mining mega deals do not yield meagre tax revenue, as recommended by Africa Mining Vision (AMV), government must adopt competitive bidding in the disposal of mineral rights with proven geological potential. An extract from the Anglo Platinum mines’ (Angloplats) 2012 integrated report shows that “…. the company will receive a payment of the amount of US$142 million due to it for the cession, in March 2008, of Kironde and Bougai mineral right claims….” This is clear evidence that if government pursues lose it or use it principle, there is potential to have bumper revenue from disposal of attractive mineral claims if competitive bidding is adopted. Right now, it is not clear how much government received from disposal of various claims released by mining companies like Unki mine and Zimplats. In 2018, Zimplats released to government nearly 24,000 hectares of platinum claims and it is not clear how much government benefited from such claims as well as concessions made to Zimplats as part of the new lease agreement.
• Corruption is a cancer to the country’s development plans. Having a public register of beneficial ownership is important to peep beyond the corporate veil to expose the natural persons that are benefiting from mining deals. This way, it is easy to publicly identify policy makers and implementers that that have interest in business deals that they must negotiate and regulate for the benefit of the public. As it stands, most government suppliers are highly over charging goods and services, some of which are poor quality and it is not possible to fish out the “tenderepreneurs” that are siphoning public funds.
• A country that hinges its economic development plans on mining must be guided by the Constitution, Section 315 (2) (c) – “An Act of Parliament must provide for negotiation and performance of concessions of mineral and other rights” In March 2019, the Minister of Finance announced that government has so far sealed mining deals worth US$8 Billion. These deals must be immediately be brought to Parliament for scrutiny to ensure that the terms and conditions harness optimal national development linkages from mining.
• ZELA to request for partnership with ZIMRA to produce position paper to guide Parliament on alignment of relevant pieces of legislation on mining taxation, the Income Tax Act, Mines and Minerals Act, and the Environment Act which are not currently speaking to each other. For example, the Income Tax Act does not qualify black granite mining as mining operations. As a result, exemptions like capital redemption allowances which are enjoyed by mining operations are not applicable to black granite mining.