sharing in governance of extractive industries
To help to turn the African Mining Vison (AMV) into reality, a reflective and recurrent national conversation on how government transparently and efficiently garners and deploys development finance from the country’s huge mineral asset base is a main feature of the Zimbabwe Alternative Mining Indaba (ZAMI2017). Running under the theme “Promoting responsible and accountable governance of minerals”, the 6th edition of the ZAMI was held on 04 and 05 October 2017 at Holiday Inn Bulawayo. The ZAMI is a multi-stakeholder engagement platform involving communities, CSOs, government and business. ZAMI pivots on policy and practice reforms focused on amplifying community benefits from mining and the mitigation of community rights violations. Organisers of the ZAMI are the Zimbabwe Council of Churches, Zimbabwe Coalition on Debt and Development and the Zimbabwe Environmental Law Association (ZELA)
The breakaway session on Tax Justice was moderated by Chipiwa of Action Aid International Zimbabwe (AAIZ). On the panel was Briggs Bomba (Trust Africa), Cephas Makunike (Tax Justice Network Africa) and Malvern Mudiwa (Marange Development Trust). Briggs Bomba opened the conversation by saying “We are dealing with a situation of incredible mineral wealth and terrible performance in terms of human development. Illicit Financial Flows (IFFs) weakens government’s capacity to finance human and economic development programmes” Bomba highlighted that Zimbabwe is a mineral rich country. Its Platinum Group of Metals (PGMs) and high-grade chromium deposits are world class, ranking second best after South Africa. Yet according to UNICEF, 70% of Zimbabwe’s population is living under extreme poverty. Hospitals and clinics lack basic drugs, the education sector is poorly funded. Virtually, tertiary education has collapsed.
Bomba shared that the Global Financial Integrity (GFI) defines IFFs and OECD as “illegal movements of money or capital from one country to another. GFI classifies this movement as an illicit flow when the funds are illegally earned, transferred, and/or utilized’. However, he emphasised that IFFs flows simply means theft of public resources. Generally, there are three main sources of IFFs, base erosion and profit shifting (BEPs), criminality and corruption. BEPs accounts for the largest share of IFFs through mis invoicing. Whilst corruption accounts for 5% of attributable loss to IFFs, it is notable that Zimbabwe is the most corrupt country in Southern Africa. Zimbabwe is ranked number 154 out of 175 according to Transparency International, Corruption Perception Index (CPI) available here.
Briggs cautioned that there are different figures being thrown around on estimating the amount of IFFs. Since IFFs are an underground economic and criminal activity, estimates are simply based on what people can calculate. Look at the value chain to appreciate the risks of IFFs.
Some of the major drivers of IFFs in Zimbabwe include poor knowledge of the quality and quantity the country’s mineral assets. What this means is that, the country fails to leverage on economic rationale for disposal of mining rights. In other words, there is no relationship between how much is paid to acquire mineral concessions and value of the minerals acquired. Overgenerous tax incentives are also a major challenge. The $3 billion investment by the Russians in platinum mining is a welcome development available here. However, no taxes will be received until the investors recoup their capital.
Lack of disclosure of beneficial owners of mining deals is another driver of IFFs. It is difficult to stem corruption if natural persons benefiting mining deals can hide behind faceless shell companies. It is possible to register a company in Zimbabwe without the disclosure of the beneficial owner. Massive under invoicing of the quality and quantities of minerals exports is also a challenge. A case in point concerns the under-valuation of Marange that was noted the Financial Action Task Force (FATF) report (October 2013) on Money Laundering and Terrorist Financing Through Trade in Diamonds available here. Huge consultancy or management and brand fees paid to companies domiciled in tax havens also contribute to thinning of taxable income.
Bomba also highlighted that it is problematic that OECD is leading the fight against IFFs whilst they are a major destination of IFFs, they should not champion’ Africa’s fight against IFFs. Africa though is not investing enough to fight against IFFs. Africa only has the High-Level Panel report on IFFs known as the Mbeki here. Whereas OECD look has heavily invested in documentation and institutions set up by OECD Africa only has HLP report. As for Zimbabwe, it’s highly regrettable that the Ministry of Foreign Affairs rather than the Ministry of Finance is the major participant at African Union discourse on curbing IFFs.
In his presentation, Cephas Makunike of the TJNA implored the Zimbabwe Revenue Authority (ZIMRA) to set up a special unit to deal with abuse of transfer pricing, a major driver of IFFs. Other African countries like SA, Ghana, Nigeria and Kenya, have set up transfer pricing real time monitoring units. He emphasised that Parliament should have real teeth on oversight role, reviewing of mining agreements and audits for SOE. Section 315, subsection (2) (c) of the Constitution requires Parliament oversight in contract negotiation and performance of mining agreements to ensure transparency, honesty, cost-effectiveness and competitiveness.
Makunike also shared the four important roles of taxation known as the 4Rs, Revenue raising, Redistribution, Repricing and Representation. Taxes are an important tool to raise revenue to fund government activities. It is important for government to have a progressive tax regime. Those that earn more should pay more. It is disheartening to note that Corporate Income Tax contribution to the national purse is meagre. Through taxes, government can redistribute wealth through financing service delivery programmes such as health and education. Government expenditure must be pro-poor.
Taxation is also used to reprice goods. For instance, government imposes “sin taxes” to discourage the consumption of alcohol and tobacco. People may think that they are not paying taxes, but is important to note that Value Added Tax is paid by consumers, one way or another we are consumers of goods and services. As tax payers, citizens therefore have a right to question government on the handling of public funds to fulfil their Socio-Economic Rights (SERs). The 4 Roles of taxation give enough cause for public participation in tax justice issues. It is fundamental that the subject of taxation which is often deemed highly technical, must be simplified to make it easier for citizen to meaningfully participate in the management of public funds.
Another area that Cephas raised what the need to create and sustain a tax justice campaign in Zimbabwe. At regional and international level, campaigns that have taken off include the stop the bleeding campaign and follow the money campaign. For this to happen in Zimbabwe, a strong tax justice network is needed. A platform to promote tax dialogue at different levels just like policy or political dialogue meetings at SAPES Trust must be established. He also flagged that the discussion on taxes must be linked with government’s failure to provide basic services like health, education, clean portable water is a violation of the constitutional rights, human rights. International commitment like Abuja declaration on health which sets a minimum threshold for investing into the health sector are useful to hold government accountable of pro poor expenditure. At least 15% of the budget should be invested in the health sector.
Malvern Mudiwa of MDT, a community data extractor under the PWYP pilot project with ZELA on community data literacy for demand driven change available here shared his experience. Through accessing and analysing Mutare RDC’s financial statements for 2014 and 2015, MDT noted that diamond mining companies were barely contributing taxes to the local government. MDT also analysed the Auditor General’s 2015 report on local authorities which was silent on problems around mineral revenue generation by Mutare RDC. However, the same report exposed the challenges that Mutoko RDCs was facing on revenue collection. MDT is in the process of doing a comperative analysis of Mutare RDC’s budget with total proceeds of diamond sales from 2009 to 2016. This will establish if there is a relationship between diamond proceeds and the local fiscal muscle. For instance, in 2012, diamond sales peeked to $741 million and it would be interest to see if this Mutare RDC’s revenue spiked in that year. Whilst the nation is ceased with the missing $15 billion issue available here, MDT wants government to account for the local share of $2 billion that was realised.
The following issues were discussed and agreed;
Add a Comment