On Tuesday, the 9th of March 2021, cabinet pronounced five policy and legislative changes that are intended to curb the abuse of mining rights and environmental degradation associated with mining. In this commentary, we delve into the proposed changes to establish their likely implications and suggest recommendations to improve mining sector policy and regulatory framework.
(a)Submission of a current tax clearance as a condition of renewal of all mining concessions
This is a progressive move by the government. Other jurisdictions already have this as part of their mining laws. For example, Tanzania’s mining law stipulates that a current tax clearance certificate should be submitted as part of an application for a mining title renewal. The question is what is the mischief that the government would want to cure by this move?There are allegations of tax evasion that have been publicly reported in the mining sector in the last 10 years. In 2019, the Moti Group linked African Chrome Fields company was accused of trade mispricing during exportation. This trade mispricing was used as a way of retaining a portion of the sale revenue abroad, typically in South Africa. The Minerals Marketing Corporation of Zimbabwe (MMCZ) declined to renew the company’s export license following these. In another incident in 2014, The Office of the Auditor General (OAG) revealed that Anjin Diamond Company, government’s Joint Venture (JV) partner evaded taxes during its 2013 mining operations. The OAG’s office further indicated that it could not verify the investment and tax payments made by Anjin as was required under the Joint Venture (JV) agreement. This change being introduced by the government is clearly meant to weed out such acts of tax evasion and to increase compliance with mining tax laws. If implemented, this would plug loopholes in government’s revenue mobilization in the mining sector.
Notwithstanding the positive aspects of this change, it also goes without saying that the proposed move has its own weaknesses. We unpack these as follows;
I. A condition of a similar nature must be applied to the process of applying for mining concessions for the first time. This would reduce the likelihood of attracting predatory investors into the mining sector. Given that an applicant for a mining concession would ordinarily not have tax clearance certification during project inception, the government may consider requesting that the company show that it has no record of tax evasion or avoidance or commercial crimes allegations elsewhere. Such an approach to due diligence by the government when screening investors is in line with international best practices on promotion of human rights and elimination of Illicit Financial Flows (IFFs) and trade in conflict minerals.
This proposal must be contained within the main piece of legislation governing mining in Zimbabwe. Currently, it is a regulation issue and there is no provision for this in the last version of the Mines and Minerals Amendment Bill that was availed publicly. the government must take advantage of this ongoing process of refining the Mines and Minerals Amendment Bill to incorporate this aspect.
II. There is also a problem that can be faced when the tax clearance certificate condition is abused. Granting of these tax clearance certificates can be easily abused in a political and economic context where mineral revenue transparency is lacking and where political actors may hold economic interests or intend to benefit from the mining rights. Coming up with a policy on public disclosure of tax revenue paid by each mining company and contracts would help to reduce corruption on awarding of such certificates.
III. There are a variety of payments that mining companies are mandated to pay to local authorities. Serious concerns have been raised that some mining companies never honour up to their tax obligations at local authority level. The government should also consider making submission of a Local Authority rates clearance certificate as a condition for renewal of all mining concessions a legislative requirement.
(b) The Environmental Management Agency will undertake audits to ensure that contracted companies are performing their work up to standard
This is not a new policy or regulatory framework being proposed as the Environmental Management Agency (EMA) is already mandated to carry out environmental audits according to the Environmental Management Act [20:27]. In 2015, the Auditor General’s Report raised a concern that EMA was lagging on conducting environmental audits. The 2015 Auditor General’s report recommended that EMA must conduct periodic environmental audits. There is a need for the government to ensure that resources are availed for the audits to be undertaken. However, there is a risk that even if these audits are undertaken, vested interests that politicians have in the mining sector may have a huge bearing on the opinions that will be expressed in such reports and the implementation of the recommendations thereof. Therefore, beyond undertaking the audits, there is need to ensure that the audits are independently done and publicly disclosed and there is political will to hold companies accountable for non-compliance.
(c) A certificate of production from MMCZ/Fidelity Printers to be attached as proof of previous year production. It was agreed that a mechanism be established for certification of production sold locally where MMCZ is not involved. Where no production was undertaken in the previous year, plans to get into production should be outlined and, in all cases, five-year production plans should be submitted.
Fidelity Printers and Refiners (FPR) is a sole buyer and exporter of gold in Zimbabwe. The MMCZ has an exclusive right to market and sell minerals other than gold according to its mandate. The country has been losing significant revenue due to smuggling of minerals through our porous borders through countries such as Mozambique and South Africa.Three minerals i.e. gold, chrome and diamond have been more susceptible to leakages. In 2020, MMCZ raised a concern over the mismatch between chrome that was being declared at its various weighbridges and the volumes of chrome exports through borders.
I. The announced policy measure may help to curb mineral leakages if the certificate of production is an outcome of a thorough assessment of the company’s production and MMCZ can verify that there were no cases of under declaring in the year in question. The policy needs to be complemented by an audit to ensure that the certificate of production represents a true position of the company’s production performance. The government might also need to include failure to provide a clean production report as a potential reason for the termination or non -renewal of a mining right.
II. Using the previous year’s production as proof poses a limitation in terms of understanding the company’s production history especially if the company would have been in production for more than one year. Assessment should be done for all the years of production.
III. Government may also consider making it mandatory for the mining rights renewal process to include disclosure of reasons why the company would have failed to produce anything in the previous years. This will help the government to weed out investments of speculative nature in the mining sector.