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sharing in governance of extractive industries

Hinge the 2020 National Budget on US$12 billion mining economy strategy

Introduction

Anchored on public pre budget consultations, the process to formulate the 2020 National Budget Statement is underway. Public participation during budget formulation is fundamental. Citizens and civil society must grab the opportunity to influence how public revenues are generated and allocated to address the stubborn challenges posed by inequality and poverty. Obviously, citizen participation must not be restricted to budget input, but across the whole value chain of service delivery. This entails public participation in processes which determine how public resources are raised, allocated, disbursed, spent and accounted for to ensure progressive realisation of socio-economic rights embodied in the Constitution. The nation is quite plugged in on the increasingly domineering role of mining in the economy. Therefore, it is critical for civil society organisations like the Zimbabwe Environment Law Association (ZELA) to give input on how the budget can hinge more on mining potential on domestic resource mobilisation.

An input harvested through multi-stakeholder engagement meetings grassroots which feed into the provincial and national alternative mining indabas. Primarily, the focus on such indabas is to push for conducive policy and practice reforms to have grip for the slippery sustainable development dividend from mining. Recently, government launched its strategy to realise a US$12 billion mining economy by 2023.

Given this significant development, It is imperative to influence the budget formulation to ensure national budget is primed to capture a fair share of revenue from this anticipated remarkably growth. Below are key pointers of how the 2020 National Budget Statement must enhance mining fiscal linkages by ensuring greater transparency and accountability. Essentially, the pointers raised here are not necessarily new, over the past couple of years, resource rich communities and civil society have been making such demands with mixed success.

Deliver on mining sector transparency reforms as required by the Constitution

Six years have passed now since the new Constitution was adopted in 2013, but mining sector transparency reforms as required by new Constitution are a mirage.

  • The Constitution requires an Act of Parliament to guide negotiation and performance of mining agreements to ensure transparency, honesty, cost-effectiveness and competitiveness, Section 315 (2) (c). With the launch of a strategy to realise US$12 billion contribution from the mining sector by 2023, more mega mining deals are in the pipeline. The secrecy around how these deals are negotiated must be ended as required by the Constitution. Further, existing and new deals must be monitored to ensure mining growth is not unhinged from national budget contribution. As such, the budget must set the context for Parliament to review the fiscal terms of past, new and prospective mining mega deals.
  • Public financial management principles embedded in the Constitution under Section 298 requires transparency and accountability in all financial matters among others. The budget, therefore, must put in place tangible steps to harness low hanging fruits to deliver mining tax revenue transparency reforms. Low hanging fruits include the disclosure of mining sector performance across each revenue head and the revenue performance of key mineral sectors like gold, platinum, diamonds, chrome and coal, for example. Already, the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA) is disclosing quarterly and annual tax revenue performance reports per revenue head. Such revenue heads include Corporate Income Tax (CIT), customs duty, royalties, withholding tax, Pay As You Earn (PAYE) and Value Added Tax (VAT).

There is room to fine tune such reports to track the performance of the mining sector.

 

  • The Budget can also borrow inspiration from how the Intermediated Mobile Money Transfer Tax is handled in order to improve mineral revenue transparency. This can be done by earmarking a portion of mining revenue, 50% for instance, towards human development and infrastructure programmes. Further, billboards can be erected to show clinics, schools, roads and dams being funded by revenue from diamonds, platinum, gold and other minerals. By doing so, the budget can set the tone to acquit to citizens the the depletion of the country’s mineral reserves through mining is not a plunder of resources but a catalyser for sustainable development.  

 

  • Another milestone which the upcoming budget must deliver is disclosure of the tax incentives. That is, tax revenue forgone to attract investments in the mining sector. Disclosure of tax incentives is fundamental to fulfil the promise made in the 2019 National Budget Statement on monitoring and evaluation of tax incentives.

 

  • The 2020 budget must give a clear update on funding for modernising the mining title administration system – a computerised mining cadastre. The current mining cadastre is outdated, a source of claim ownership disputes and a corruption enabler. It is critical that the budget address perennial nagging challenges associated with funding for computerising the cadastre mining system.

 

  • In the medium term, focus should me on adoption and implementation of the Extractive Industry Transparency Initiative (EITI) to enable open and accountable governance of the mining sector. Remarkably, the 2020 pre-budget strategy paper embraces EITI. Concreate steps like creation of a multi-stakeholder grouping and budgeting for implementation of EITI must be included in the Budget.

Review of platinum royalties

A commitment was made in the 2018 National Budget Statement to review platinum royalties by August 2019. A result of the lowering of platinum royalty rate from 10% to 2.5% to ensure equity and fairness among all platinum players. Prior to this arrangement, ordinary platinum lease holders, Mimosa specifically, was paying a 10% royalty rate whilst special lease holders like Zimplats and Unki mine were paying 2.5% royalty rate. Given that the Midterm Budget Review which happened in August failed to review platinum royalty as promised, it is critical, therefore, for the 2020 National Budget to review platinum royalties upwards to increase mining tax revenue contribution. As it stands now, platinum royalty rates are now half the rate of the gold sector and marginally higher than base metals by 0.5%.

Mineral revenue sharing mechanism

Considering that previous budget instruments are responsible for dismantling the indigenisation and economic empowerment framework, in the process removing legal backing for Community Share Ownership Trusts (CSOTs). A vehicle tailored to hinge sustainable local economic and social development on mining. The right of communities to benefit from resources in their localities is a constitutional issue through Section 13 (40 of the Constitution. Consequently, the Budget must embrace mineral revenue sharing arrangements between the national government and resource local government. For instance, 20% of mineral royalties must be ploughed back in areas where the resources are extracted. That way, CSOTs will have a sustainable revenue stream to finance local development.

Conclusion

Policy coherence is an important ingredient for government to spearhead sustainable and broad-based socio-economic development. Now that the Ministry has a strategy to realise a US$12 billion mining economy by 2023, the national budget must clearly speak to the mining fiscal linkages hinged on this remarkable projected growth. The journey towards EITI must be marked with clear road signs which are to be benchmarked with constitutional requirements, tax transparency and contract transparency. It is imperative for a budget which dismantled legal backing for CSOTs to come up with measures to ensure communities benefit from resources in their areas as required by the Constitution. In this regard, government must consider mineral revenue sharing arrangements with communities where resources are extracted.

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