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sharing in governance of extractive industries

Steps To Curb Short Circuiting of Mining Fiscal Linkages

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.

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