Mining & Sustainable Development

articles on mineral resource governance

Too much of a good thing, how overly generous tax incentives are gouging public investment in health and education

By Darlington Chidarara, Project Coordinator, Action Aid Zimbabwe and Mukasiri Sibanda, Stop the Bleeding Consortium Coordinator

Africa is shouldering an overweight sustainable development problem of poverty, inequality, instability, and conflict that COVID-19 has aggravated. There are many contributing factors, undoubtedly, to the continent’s stunted socio-economic growth. The dominant one is the lack of financial firepower by governments to make significant investments in basic service provision and social safety nets essential to ameliorate the suffering millions and millions of Africans.

A case in point is that Africa accounts for 1% of the global spend on health, with a global population size of 15%, and 24% of the world’s health problems. While COVID-19 is ravaging the continent, medieval diseases like cholera still pose a huge challenge, Nigeria, for example, is facing a severe cholera outbreak. More than 2,300 lives have been lost from suspected cholera cases.

Crucially, much-needed financial power can be gained by stopping the bleeding of resources to finance development from the continent. The Highly Level Panel (HLP) report in 2015 disclosed that more than US$50 billion annually is lost from Africa through illicit financial flows (IFFs). A grimmer picture is presented by UNCTAD’s report, Tackling Illicit Financial Flows for Sustainable Development in Africa, which recently pointed out that the problem of IFFs is growing, roughly $89 billion is now being lost annually.

A major finding in that report is that countries that are highly vulnerable to IFFs, as the case with resource-rich African countries, spend 25% and 58% of health and education in comparison with countries that are less susceptible to IFFs. Although commercial transactions — abusive transfer pricing, under-invoicing, unequal trade, and investment contracts, account for the largest chunk of IFFs, 65%, governments are exacerbating the challenge because of overly generous tax incentives.

Generally, tax incentives are characterised by opaqueness, a huge leakage of government revenue, often politically motivated, highly prone to corruption, and ineffective. Research shows that tax incentives given to attract Foreign Direct Investment may not be necessary as investors consider other factors like policy predictability, infrastructure, rule of law, and ability to repatriate profits, among others.

Even when pressed with the widening finance gap for health and education induced by the pandemic, the African governments continue to give tax incentives. Eight months ago, in January 2021, the government of Zimbabwe awarded a five-year income tax holiday to Great Dyke Investments, a platinum mining company. Civil society in Zimbabwe, with the support of the Stop the Bleeding Campaign, produced a protest statement imploring the government not to surrender its taxing rights. Action Aid Zimbabwe a month ago organised a summit on Tax Justice and Gender Responsive Public Services (GRPS) that decried the disastrous impact of tax incentives on poor service delivery hurting most of the poor — women, youth, and people with disabilities.

The government of Zimbabwe though is not oblivious to the havoc that tax incentives can cause on domestic resource mobilisation. Through the 2019 National Budget Statement noted that the “absence of a tax incentives monitoring and evaluation framework (tax holidays, losses carried forward and VAT refund levels” was a huge challenge.

The government then committed to “develop 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.” According to International Budget Partnership (IBP), “tax expenditures arise as a result of exceptions or other preferences in the tax code provided for specified entities, individuals, or activities. Tax expenditures often have the same impact on public policy and budgets as providing direct subsidies, benefits, or goods and services”

Remarkably, the Zimbabwe Revenue Authority (ZIMRA)’s 2020 annual report included an estimate of revenue forgone via tax incentives — a tax expenditure report. ZIMRA’s annual report noted that “A total of ZWL$111.55 billion was foregone through tax expenditures, an increase of 555.79% from the ZWL$17.01 billion recorded in 2019.” Using the current official exchange rate of US$ being equivalent to ZWL86.3010, tax revenue forgone in 2020 is equivalent to US$1.29 billion.

If we compare the tax revenue forgone of ZWL$111.55 billion against actual revenue collected by the government in 2020 of ZWL$171.9 billion, an equivalent of 65% of total government revenue was gobbled by tax expenditures. Much as it is commendable that the government is now disclosing publicly the cost of tax expenditure annually, significant gaps remain on adequate informing and engaging the public on such crucial decisions that impact their lives. In line with best practice, the national budget statement does not include an estimate of revenue forgone via tax expenditures.

Hence this indirect budget subsidy is not subjected to public scrutiny and parliamentary oversight as the direct government expenditures that comprise the national budget statement. ZIMRA’s annual report does disclose beneficiaries — companies, individuals, and activities that received indirect budget support in form of tax expenditures. It is not clear from the annual report if a cost-benefit analysis of tax expenditures is regularly done to assess whether the intended policy objectives are being met.

A look at what the government spent in 2020 as per the Fourth Quarter Treasury Bulletin uploaded online on 31 March 2021 on the Treasury’s website clearly illustrates the diabolic costs of tax incentives. Tax revenue forgone by the government in 2020 accounted for 74% of the entire compensation of government employees in that same year, totaling ZWL$151.17 billion.

Thus, if the tax expenditure was redirected towards civil servants’ salaries, the demoralised civil servants would have earned decent wages. The government spent a combined total of ZWL$1.13 billion on medical and health education supplies and services in 2020. Similarly, redirecting tax expenditure would have boosted investment in these services by 9,868%, wiping out the sharp shortage of essential drugs, boosting maternal health care, and helping to modernise the education sector.

According to World Bank’s economic and social update report, in June 2021, limited social safety nets are forcing the poor to resort to negative coping strategies. The report noted that “poor households are likely to forgo formal health care as they are unable to pay for services, and to keep children out school to avoid education costs, such as for school fees, uniforms, and textbooks.”

This was corroborated by Action Aid Zimbabwe’s Tax Justice and GRPS summit “overall, the Zimbabwean education budgets continue to rely on parents and families through user fees. For example, in 2018, the government allocated US$905 million to primary and secondary education. In the same year, it is estimated that parents contributed approximately US $1 billion in school fees and levies.”

It is obvious if the government of Zimbabwe can stop the too much of a good thing inform of overly generous tax incentives yielding windfall profits to corporates, Zimbabweans can enjoy the quality health and education services that they deserve. Platinum mining companies are recording bumper revenue from buoyant commodity prices, yet the inflexibly fiscal regime is failing to capture a commensurate share of government revenue.

Holding a mirror for Artisanal and Small-Scale Mining taxation challenges in Zimbabwe

Those that are not well connected and cannot afford bribes end up mining without the permits paying owners of mining permits huge royalties, normally 30% of net proceeds after deducting costs. Ultimately, government loses out.

Mining is the spine of the economies of many African countries. For all its mineral wealth, African countries are spineless concerning capabilities to mobilise resources to finance sustainable development on the continent. The poor, and marginalised groups particularly women, youth, people with disabilities, and the elderly are the hardest hit as they largely depend on public services — health, education, water, and sanitation.

Mineral dependant countries, as noted by the report of the High-Level Panel (HLP) on Illicit Financial Flows from Africa, are highly vulnerable to illicit financial flows (IFFs). Although there is no consensus on what IFFs are, the HLP report’s definition covers both criminal and immoral components — tax evasion and aggressive tax planning to exploit legal grey areas. Large scale mining companies are the main culprits when it comes to tax fraud in Africa as revealed by the HLP report.

Double jeopardy is suffered because on top of tax shenanigans by large-scale miners, artisanal and small-scale mining (ASM), mainly informal, gives nightmares to tax collectors. A colossal annual loss of US$1.8 billion through smuggling, illegal dealing in gold and precious stones, corruption, fraud, tax evasion, and externalisation, among others, was revealed by the Zimbabwe Treasury in 2015.

Unlike large-scale mining, ASM is a major source of employment and income generation in Africa. More than 1.5 million in Zimbabwe directly depend on ASM, with 3 million people indirectly benefiting. Essentially, the ASM sector is an important buffer against poverty, lack of formal employment opportunities, limited community enterprise development avenues, and unreliable agriculture production due to climate change effects. That is why ASM is recognised by the Africa Mining Vision (AMV), a blueprint that was adopted by the African heads of states and government in 2009, to leverage mining for sustainable economic growth and broad-based economic development.

This article takes special interest in the taxation of the ASM sector, with Zimbabwe as the main reference point. What motivated this article is the discussion that was organised by the Zimbabwe Miners Federation (ZMF) on Thursday, 09 September 2021, to try to solve ASM taxation challenges. The speakers comprised the Zimbabwe Revenue Authority, civil society, academia, and the leader of Parliament portfolio committee on mines and mining development.

Fiddling with tax rates for ASM

The government of Zimbabwe has numerously fiddled with the taxation of the ASM sector, a delicate balancing act of trying to ensure compliance levels by stifling the black market for gold and the mobilisation of tax revenue. Prior to 2014, the royalty rate for ASM and large-scale miners in the gold sector were similarly pegged at 7%. As an incentive for selling gold on the formal market, the 2014 National Budget Statement lowered the royalty rate for ASM from 7% to 3% for gold output not exceeding half a kilogram per month with effect from 01 January 2014. Further, the ASM gold royalty rate was slashed to 1% from 3% with effect from 1 September 2015. All along, the government was lauding the impact of a lower ASM gold royalty rate as a significant driver of increased gold deliveries on the formal market.

There was a policy U-turn when ASM gold royalty was increased to 2% from 1% with the effect of September 2019. Although the lowering of ASM gold royalty was well-intentioned, the Treasury noted that it has side effects on tax revenue collection. There was a huge risk that some unscrupulous large mining houses were selling gold through small-scale producers, to benefit from lower royalty rates as well as higher foreign currency retention thresholds. Royalties for large-scale gold producers were pegged at 5% and 3% for any annual incremental production. In the same period that ASM gold royalties were increased to 2%, sliding gold royalty rates were introduced — 3% for prices below US$1,200 per ounce and 5% for the price above US$1,200 per ounce. Faced with a sharp decline in ASM gold deliveries, the royalty rate was slashed back to 1% from 2% in 2021. Presumptive taxes for ASM were scrapped in 2014. Before that, presumptive tax for all informal businesses was pegged at 5% in 2009 and slashed to 2% in 2011.

A huge tax burden contributes to informalisation and loss of revenue

According to the 2016 midterm Monetary Policy Statement, the number of registered custom millers reduced to 51 from 485 after annual registration fees were raised sharply from US$2,000 to US$8,000. The Statement noted that there are many millers who cannot afford to pay the required fee of US$8 000 but they are still operating and selling their gold on the black market and/or smuggling gold out of the country. Likewise, the number of permit holders for explosives in the ASM was about 5,000 when the fee was US$100 and fell to 300 when the fee spiked to US$2,000.

Challenging the false narrative that ASM doesn’t pay taxes

It is a stylised fact that ASM does not pay taxes. One of the major sources of government tax revenue is Value Added Tax (VAT). For the first half of 2021, according to Zimbabwe Revenue PZIMRA’s revenue performance report, VAT contributed 23.92% to total tax revenue. Because of their strong consumptive power, artisanal and small-scale miners (ASMers) are key contributors to VAT. Notably, because of the informal nature of ASM, it is safe to say that most players are not registered for VAT. On that note, they cannot claim their VAT refunds as opposed to large-scale miners.

ASM is also burdened by underground taxes especially bribes. It is not easy to get a mining title with others waiting for more than 3 years for the permits to be processed. Some end up paying bribes to speed or the processing of mining permits. Those that are not connected and cannot afford bribes end up mining without the permits paying owners of mining permits huge royalties, normally 30% of net proceeds after deducting costs. Ultimately, the government loses out.

Significant inroads made with taxpayer registration but no clarity of what this means for ASM

In the hunt for more tax revenue, 21,643 new taxpayers were registered in 2020 with a revenue contribution of $558,234 million, according to ZIMRA’s 2020 Annual Report. This was attributed to tax education and engagement programs. No disaggregated data was availed to sift the information on newly registered taxpayers to see how many were from ASM.

Snapshot interviews I had with local ASM leadership in Gwanda, Bubi, Shurugwi, Zvishavane, and Mberengwa, some of the key ASM gold mining producing districts in Zimbabwe revealed there was hardly any significant interventions undertaken by ZIMRA to register new taxpayers among their constituency. ZMF says that there are roughly 40,000 fully registered ASM players out of 1,5 million, and there is a need to dig for more information on those fully registered also tax compliant.

An ideal scenario would be a computerised mineral rights cadastre, managing the application, award, maintenance, and forfeiture of mining titles to be integrated into ZIMRA’s database of taxpayers. That way, ZIMRA, for example, would have a fair chance of collecting taxes like capital gains in case of changed ownership of claims or mineral rights through buying and selling as speculative practices are alleged to be rife.

Above all, ZIMRA collected ZWL$1.81.96 billion which was 5.85% above the target of ZWL$171.9 billion. Considering the strong evidence that the mining sector is highly prone to IFFs due to poorly negotiated contracts, under-invoicing, abusive transfer pricing, corruption, and smuggling of minerals, recording a positive revenue tax collection could be a mask the true tax collection challenge.

Ring fence government revenue from ASM

One of the important roles of taxation is representation, it creates a social contract between the taxpayer and the government. Transparency is a key enabler for a strong social contract between government and players in the ASM sector. Several high-ranking government officials and political heavyweights are involved in ASM and the suspicion that they are not paying taxes because of high levels of corruption can dissuade others to pay taxes. When government improves local public service provision in communities where resources are mined and acknowledge the ASMers for their contribution.

For example, if ASM gold deliveries amount to US$1 billion in one given year, a 2% royalty fee is applied, it means that the government would have collected US$20 million. The government ploughs back ASM royalties to improve rehabilitation of the environment, access to finance, mechanisation, skills building, bolster investment in education, health, water, roads, power, and communication, ASMers can be motivated to comply with their tax obligations. Also, the government must widely consult with ASMers on taxation of the sector to ensure that they have a voice on matters that affect them as part of their constitutional rights. Policy inconsistencies must be avoided. Government must stop going around in circles concerning tax rates like royalties and other charges. Tax administration must be simplified to ensure that ASMers are not dealing with multiple government institutions that are not coordinating their charges and tax collection.

Tax collection must be supported by fair payment methods for gold deliveries

While unfair tax rates have acted as an impediment to ASM formalisation, or even erode some gains made, the unfair payment mechanism has pushed many to go underground and deal with the black market that pays fairly and promptly in US dollars. ASMers have been losing more money from the manipulated exchange rate when part of their proceeds was collected by the government as part of the local content policy for enhances foreign currency linkages for procuring fuel, electricity, raw materials, and machinery among others. Importantly, the government is now paying ASM 100% foreign currency for gold deliveries but for roughly four years, ASMers were robbed by unfair payment methods that meant that the part payment in local currency was liquidated at an unfavourable official exchange rate compared to the black-market rate.

SADC countries continue to grapple with the collateral damage of illicit financial flows from the region’s mining sector

By Fambai Ngirande, Southern African People Solidarity Network (SAPSN) Coordinator and Mukasiri Sibanda, Stop the Bleeding Consortium Coordinator

27 August, Zimbabwe – As we see the pandemic continue to wreck hack on the continent, civil society needs to be prepared for a hardening struggle to generate sufficient political will to ensure the implementation of measures to combat raising IFFs. Challenging, and ultimately reversing, pro-business measures that facilitate the leakage of resources without delivering commensurate benefits to citizens must therefore take centre stage in the struggle against Illicit Financial Flows (IFFs).

The rise to power of leaders with vital business interests, tainted with allegations of facilitating resource leakages, presents significant state capture risks and a huge detour from sustainable development in the SADC region. These risks manifest themselves through the entrenchment of mechanisms designed to expropriate resources away from citizens and into the hands of vested interests.

Congratulations to Zambia. A country that is proving to be a shining star of African democracy. Yet IFFs, like the rest of African countries, are leaving the land behind on a sustainable development pathway. IFFs are both illegal and immoral tax practices that involves cross border movement of money with the intention of sheltering it away from tax collectors. The AU/UNECA’s High Level Panel (HLP) on IFFs from Africa led by his Excellence, Thabo Mbeki, the former president of South Africa significantly elevated the impact of IFFs on sustainable development in the continent.

Among its findings, the HLP Report noted that the dependence of African countries on natural resources extraction makes them vulnerable to IFFs. Mechanisms through which IFFs occur in the extractive sector include transfer mispricing, secret and poorly negotiated contracts, overly generous tax incentives and under invoicing. A study by European Commission revealed that extractive companies are responsible for 65% of tax fraud in Africa. Zambia being a mineral rich and mineral dependent economy, mining export earnings contributes around 80% of the country’s total earnings, the country lost US$8.8 billion between 2001 to 2010 through capital flight.

Undoubtedly the new Zambian president will be judged on how he can help his country to exorcise this sustainable development demon. It is important to raise that His Excellency, Hakainde Hichilema, must have a high-definition picture of mechanisms facilitating rampant IFFs in his country. The Paradise Papers implicated him as one of the 120 politicians worldwide that dodge taxes using tax havens. Hichilema was a director of AfNat Resources Limited, a mining company registered in Bermuda, a notorious tax haven that did not tax corporate or personal income tax until 2016.

Zambia’s president’s murky record on IFF echoes South Africa and Zimbabwe experiences. President Cyril Ramaphosa in South Africa was involved in Lonmin, a platinum mining company identified for evading taxes. And in Zimbabwe, there are persistent allegations that President Mnangagwa and his family are key players in Zimbabwe’s artisanal and small-scale gold mining sector that accounts for roughly US$1.5 billion annual leakages.

The common denominator from Zambia, South Africa, and Zimbabwe’s leadership is that we have people at the helm of government who have insider knowledge of what it takes to stop the bleeding of resources to finance development in their countries, the SADC region, and ultimately Africa. On the bright side, the new Zambian president has expressed his desire to fix legal loopholes that facilitate IFFs.

In Zimbabwe, however, President Mnangagwa’s similarly seemed determined to bring back the illicit wealth stashed outside Zimbabwe’s borders in his first days in office but appears this has since fizzled out. Therefore, it is important to civil society to remain alert and play their role of watchdog to ensure that there is in place sufficient safeguards to deliver the electoral promise of making mining work for Zambians.

In South Africa, among the collateral damage of IFFs is wage evasion. Low wages within the context of conspicuous wealth are one of the main factors that led to the labour discontent, which spilled into the Marikana Massacre on 16 August 2012.

The collateral damage of IFFs is especially telling amongst women and youth who bear the brunt of complex and intersecting shocks, particularly in a context of an unaddressed COVID-19 pandemic and climate impacts. Governments simply lack the resources to respond to growing public needs amidst heavy indebtedness, volatile mineral revenues, and growing inequalities. Biting austerity measures and the reduction of public spending on social services inadvertently shifts the burden of care on women and hard-pressed communities resulting in inter-generational cycles of poverty and widened inequalities.

As much as SADC countries must up their game on domestic resource mobilisation, the broken and outdated global tax architecture is exacerbating the culture of impunity. Exploiting loopholes in the current global tax frameworks, MNEs can determine where to allocate their profits to evade paying taxes in jurisdictions they generate their wealth by shifting income to tax havens – lower tax or no tax jurisdictions. No wonder why the HLP report brings to the fore the fact that Africa is a net creditor to the world. Resources that Africa loses outstrips what the continent receives via aid and foreign direct investment.

Tax instruments predominantly used to attract investments ultimately have resulted in the race to the bottom, hurting the collective resource mobilisation capabilities of countries. Although all countries are facing the first the same storm, developing countries are left a lot worse because of their huge finance deficit for sustainable development.

A look at the ongoing global tax reforms put to the table by G7, G20, and the OECD’s inclusive framework, especially the global minimum corporate tax rate is lopsided in favour of developed countries at the expense of capital importing countries. With frenetic exploitation of natural resources in Africa, countries, where MNEs are headquartered, are in a better position to gain more tax revenue if the current global minimum tax proposals are to sail through.

These are some of the key reflections from the SADC week of learning and action on Tax Justice and Extravism that was convened by the Southern Africa’s Solidarity Network (SAPSN), the Stop the Bleeding Campaign, and other civil society actors. We have not comprehensively captured all the issues discussed but sifted some nuggets or sharing. Going forward, the advocacy radar must be strengthened on the following issues.

It is crucial to build on the euphoria around smooth democratic transition in Zambia and make a compelling case for Hichilema to comprehensively implement the recommendations of the HLP report on IFFs from Africa. Six years have passed since AU adopted the HLP report on IFFs from Africa and Zambia is better positioned to be the torch bearer for Africa.

 Learning among CSOs in SADC must regularly be facilitated to galvanise advocacy on the robust mobilisation of resources from mining to finance sustainable development. SADC must not make the mistake of agreeing to global tax reforms that do not fully guarantee the region’s sovereign right to fully benefit from its natural resources – fair taxes must be paid in jurisdictions where the wealth is generated, period.

Africa’s health financing needs more oxygen

By Mukasiri Sibanda and Ishmael Zulu. This blog was firstly published on TJNA’s website       

Health financing and taxation for health care, a timely report

That COVID-19 has laid bare the global challenges of inequality and poverty is now a motto in development discourse. Although the impact of COVID-19 is multi-dimensional, economic downturn included, its epicenter is the strain on the health sector. A significant cause of concern globally but acutely felt in developing countries, especially on the African continent. Universal access to health is part of the UN’s Sustainable Development Goals (SDGs) which COVID-19 has made a mirage.

Concerned with the ballooning finance gap in the health sector, Tax Justice Network Africa (TJNA) and Christian Aid commissioned a timely report on Health Financing and Taxation for Sustainable Health Care in Africa.  The report focused on five countries – Nigeria, Kenya, Burundi, Malawi, and South Sudan. This article does not seek to repeat the whole conversation that marked the report’s launch but shares some key talking points that emerged during the report’s launch.

Numbers do not lie; Africa is in big trouble

Africa must use its resources to invest in modernised essential public services, mainly health and education. Accessible healthcare, for instance, will remain a mirage if Africa continues to rely on Aid.  The is why Africa must curb illicit financial flows (IFFs) from the continent. Drivers of IFFs comprise harmful tax practices by multinational corporations, overly generous tax incentives, corruption, and criminal activities. Africa loses over US$50 billion annually, according to the AU/UNECA report of the High-Level Panel on IFFs from Africa.

Mainly because of IFFs, the African continent accounts for 1% of the global health expenditure, 11% of the worldwide population, and 24% of the worldwide health problems. Therefore, it is not surprising that there is a significant gap between child healthcare in Africa and the rest. Even maternal health care is also significantly worse off in Africa.

At the country level, the impact of illicit financial flows is gruesome. Nigeria, one of the country case studies in this report on Health Financing and Taxation for Sustainable Health Care in Africa, accounts for a third of IFFs from Africa, as stated by the HLP report.  As of 2015, there were only four doctors for every 10,000 people in Nigeria. In 2016 out of pocket expenditure by individuals was 75.21 % of current health expenditure.

The Abuja Declaration is being ignored

According to The Abuja Declaration, the African governments committed to allocate at least 15% of their total annual national budgets to improve the health sector. Yet despite the challenges posed by IFFs, Nigeria gave a meager 4.1% of the entire budget to health in 2019, that is N367 billion equivalent to US$1 billion. Embarrassingly, Nigeria failed to comply with The Abuja Declaration signed in its capital city, which captures Africa’s commitment to improving health access.

Nigeria is not alone when it comes to failure to follow the Abuja Declaration obligations. All countries included in this study – Burundi, Kenya, Malawi, and South Sudan are in the same category. For instance, South Sudan and Malawi’s 2018/2019 budgetary allocation for health respectively stood at 2% and 9.75% of its total budget; Kenya’s health allocation fell from 7.1% to 3.08% in the 2019/2020 budget; and Burundi allocated about 12% of its budget to the health sector as per UNICEF’s report, 2017. Prioritization of the health sector lacks as a result, taxpayer’ funds are not spent for the benefit of the African people.

Commitment to the Abuja Declaration on health financing is necessary but not adequate

Beyond budgetary allocations required by the Abuja Declaration, the focus should be on the whole health value chain. For instance, growing the size of the public purse by plugging revenue leakages from Africa through illicit financial flows (IFFs) must be prioritised for universal healthcare not to remain a mirage. It is worrisome that African governments continue to give overly generous tax incentives to investors, particularly when research has shown that tax incentives are not necessary to attract investments. In addition to those working on budget transparency and accountability, civil societies must include work on tax incentives to ensure that resources are rechannelled tax revenue for boosting investment into the health sector.

COVID vaccines and taxation, wealthy nations side-tracking developing countries

The choices of rich nations on inequitable access to Covid-19 vaccines mirrors their attitude to global tax reforms. The G7’s proposal for dealing with a broken global financial architecture behind massive profit shifting, tax evasion, and tax avoidance by multinationals is self-catering and disregards developing countries’ interests. The proposed reforms seek to establish a 15% global minimum corporate tax rate to mitigate profit shifting, tax competition, and aggressive tax planning.  The proposed 15% global minimum corporate tax rate falls below the 25% rate that civil society actors are demanding to prevent decimating the tax base for developing countries. Because of the flawed design, G7, with 10% of the world’s population, will gain more than 60% of additional tax revenue through its sponsored global tax reforms. This broken tax reform must be challenged and resisted by developing countries and civil society actors.

Mukasiri is the Stop The Bleeding Consortia Coordinator and Zulu, the Policy Officer in charge Tax and Equity with Tax Justice Network Africa.

The Alternative Mining Indaba Provided A Springboard for the Stop the Bleeding Campaign

This blog was originally published on TJNA

Beyond any reasonable doubt, the Covid-19 pandemic has significantly negatively contributed to illicit financial flows (IFFs) out of Africa. IFFs are broadly defined as any financial resources illegally earned, moved, spent, or stashed across the borders with the intention of hiding income or wealth from taxpayers or anti-corruption agencies. The estimated annual losses from IFFs in Africa has ballooned to $88.6 billion according to the 2020 report entitled ‘Tackling Illicit Financial Flows for Sustainable Development in Africa’ by United Nations Conference on Trade and Development (UNCTAD) in 2020. Worse still, Covid-19 has further stretched the finance gap for basic services like health and education that suffered from pre-existing conditions of being underfunded. Millions in Africa have been pushed further into extreme poverty and the number of expected job losses is equally shocking as fundamental sources of livelihood in Africa are currently paralysed by lockdowns. Further to this, Africa is at the tail end of getting vaccines because it cannot afford to compete with rich countries and there are no meaningful resources to invest in social safety nets.

Citing the biblical adage, ‘give us this day our daily bread,’ it is imperative that Africa stops the syphoning of the continent’s resources to cushion itself against the Covid-19 pandemic. This dire situation calls for stakeholders to reflect on their role in fighting the scourge of IFFs out of Africa.

Appreciating this responsibility’s weight, civil society members in Africa agreed to relaunch the Stop The Bleeding (STB) campaign on the 8th of February 2021  during the weeklong 12th edition of the Alternative Mining Indaba (AMI) themed ‘the AMI revolution will never be muted!’

STB campaign is propelled by “… the strong belief in the voices of mobilized students, trade unions, faith-based organisations and other grassroots social movements to urge decision makers to stop the bleeding of Africa’s resources through illicit outflows.”

There was a diverse and rich panel to assist with the turbocharging of the STB campaign. The panellists comprised of the executive secretary for African Tax Administration Forum (ATAF), Logan Wort, ranked the top 50 most influential figures in Tax, and Extractive Industry  Transparency Initiative’s (EITI) Director, Disclosure and Civil Society Engagement, Lyydia Kilipi.  Youth voices were incorporated via the delivery of a podcast and a poem, delivered by Gathoni Ireri and Samantha Dube.

Kenya’s Black Gold by Gathoni Ireri

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STB poem by Samantha Dube

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OXFAM International’s lead on extractives in Southern Africa, Titus Gwemende, and the leadership of the steering committee –  Tax Justice Network Africa (TJNA), African Coalition on Debt and Development (AFRODAD), The African Women’s Development and Communication Network  (FEMNET), TrustAfrica, Pan African Lawyers Union (PALU), and The African Regional Organisation of the International Trade Union Confederation (ICTU-Africa) were also part of the panel.  This diverse group of stakeholders highlighted the following key points during the meeting.

Firstly, the frontier for curbing IFFs has shifted. It is no longer about statistics, analysis and awareness-raising. The emphasis now lies with tracking and recovering lost revenue from IFFs. Indeed, if the STB campaign can contribute to the recovery of resources, then politicians will pay attention and therein would lie the success story. To do so, ATAF is currently working with 8 African countries to recover billions lost through IFFs. Tracking and recovery of lost money, is therefore, no longer a pipe dream.

Secondly, to galvanise the STB campaign, civil society organisations must eliminate the skills deficit within their ranks. The fight against IFFs requires broader skill sets than political scientists, lawyers, economists, and accountants. The STB campaign must also include geologists, metallurgists, and IT specialists.

Another critical success factor in curbing IFFs is the need to influence learning institutions in Africa. The meeting noted that academia must be deliberately targeted and be well-equipped to have a textured understanding of IFFs. The current trend where specialists from the West and East are the ones supporting policymakers in Africa must be reversed.

It is high time that the STB campaign undertake an assessment of international treaties and developments within the global rules on taxation and IFFs to see where Africa is and what is missing. The meeting noted that African governments must be concerned with these issues including the global conversation on review of the current tax rules.

Further, the watchdog role of the STB campaign must come into play to ensure that Africa’s interest, long side-lined, is catered for in the global tax reforms discussions and decisions. As it stands, multinational enterprises (MNEs) shift at least 40% of their profits to tax havens and the bulk of the losses to IFFs are attributed to transfer mispricing. Global taxation rules, currently as they are, are skewed against the interest of capital importing countries and Africa is that bracket.

EITI also added its weight to the relaunch of STB campaign by strongly emphasising that the framework has expanded its initial remit. And expanded scope provided essential levers for the STB campaign. The focus is no longer on reconciling what was paid by extractive companies and what was received by government. Instead, the framework is now asking whether what was paid is the right and fair amount and what amount of revenue is missing that could help finance better health, education, and public infrastructure that people rely on. This too is another area that the STB campaign could tap into. With half of the EITI implementing countries located in Africa, the STB campaign could engage with the EITI framework in both implementing and non-implementing countries.

Specific areas for the STB campaign to leverage under EITI include advocating for a public registry on beneficial ownership (BO), contract disclosure, energy transitioning and multi-stakeholder engagement platforms. Knowing the real persons’ identities benefiting from natural resources would be a game-changer in the fight against corruption and IFFs risks in the extractive sector. Ms Kilip explained that all EITI implementing countries are compelled to publicly disclose contracts as well as a public registry on BO in oil, gas, and mineral sectors and in the era of shrinking civic space, EITI’s multi-stakeholder engagement platforms at country level offer good room for STB campaign to advance its mission.

The urgency of curbing IFFs out of Africa must not be looked at in futuristic terms. Recovery of stolen resources must start now. the STB campaign has an important role to play in achieving the recovery of asset goal must do this differently. Indeed, the STB campaign’s relaunch reiterated the theme of the AMI: the AMI revolution must not be muted.

Civil Society Perspectives on the Implications of Global Digital Tax Reforms for African Mining Countries

This blog was originally featured on IGF website

Why Are Extractives Critical to Africa Today?

Now, more than ever, Africa is under enormous pressure to strengthen its public finances: poverty levels have risen, and the inequality gap has widened due to COVID-19. Statistics from the African Development Bank (AFDB) paint a dismal picture: 28–40 million Africans are expected to fall into extreme poverty, and 30 million people may lose their jobs. Most African countries find themselves with insufficient resources to procure COVID-19 vaccines and to invest in socio-economic shock absorbers for pandemics and climate change disasters.

Tax Justice Network Africa (TJNA), under the ambit of the Stop The Bleeding (STB) Campaign, has been working to end the scourge of illicit financial flows (IFFs) which continue to drain resources from the continent. Tax base erosion and profit shifting (BEPS) similarly undermines African governments’ fiscal capabilities using loopholes within the international financial architecture to shift profits from high-tax to low-tax jurisdictions. New and significant revenue collection risks for resource-dependent countries could be by-products of the ongoing global digital tax proposal led by the Organisation for Economic Co-operation and Development (OECD).

Consequently, TJNA convened the OECD/G20 Inclusive Framework to discuss these tax reforms. Considering the significance of the extractive industries to African countries, TJNA invited experts from the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) to share their analysis of the implications of the global digital tax reforms on the mining sector specifically.

Key Concerns of African Civil Society

During this discussion, TJNA members and other civil society actors called on governments and civil society organizations to take action and raised specific concerns as described below:

  • African governments must actively participate in the OECD-led Inclusive Framework (IF) discussions on global digital tax reforms to ensure that their interests are protected and promoted.
  • African governments that are not part of the IF process must join it. There is no cost attached to their participation, and potentially a lot to lose by not being at the negotiating table. Ultimately, the decisions made in the IF will impact their countries.
  • African governments should publicly release the results of the OECD’s country economic impact analyses of the global digital tax reforms. This will give a better public view of what is at stake. However, independent research on this subject is still critical.
  • Civil society should continue to advocate for the United Nations (UN) to lead the process of global tax reform rather than the OECD, which is largely controlled by 37 of the world’s richest countries. The global tax reform agenda currently driven by the OECD insufficiently addresses challenges that are unique to the taxation- and IFF-related issues facing resource-dependent countries.
  • Civil society must continue pushing for a unitary tax system focused on taxing multinational enterprises as whole units instead of country-by-country tax assessment on subsidiaries. Indicators for economic activity such as number of employees and asset value can be applied to apportion taxes due. However, there is a need for further research on sectoral basis to determine if such a reform process can achieve the intended results of curbing profit shifting, especially for the extractive sector.
  • The OECD-led proposal would set a minimum effective tax rate on multinational profits. The aim is to reduce the incentive for multinational companies to shift profits away from their countries of operation or residence to low-tax jurisdictions. However, the effectiveness of this proposal depends on where the effective minimum tax rate is set. If set too low, it is unlikely to deter the current race to the bottom.
  • Under the current proposal, the minimum effective tax rate will only apply to companies with a consolidated annual income of EUR 750 million. This does not take into consideration the economic reality of mineral-dependent countries in Africa. Medium- and small-sized mining companies have a material economic impact on mining at the domestic level, and many of these will be left out by the reform process. It is, therefore, critical that the minimum threshold be set according to our local realities.

TJNA members and other civil society actors noted that while the OECD-led process on global digital tax reforms is skewed against developing countries, it remains a critical forum that African countries must work hard to influence. African countries that are passively part of the IF process must, therefore, shift gears and engage meaningfully. In the same vein, it is imperative that those that are not part of the IF join the bandwagon and make their voices heard. In doing so, however, African countries must remain committed to continuously pushing for global tax reforms to be led by the UN, a more inclusive body than the OECD.

Mukasiri Sibanda is a Tax and Natural Resource Governance Advisor with Tax Justice Network Africa (TJNA), a pan-African research and advocacy organization. The TJNA Secretariat is based in Nairobi, Kenya and has 32 member organizations and chapters in 22 countries.

The preceding is a guest blog and does not represent the views or opinions of the IGF Secretariat or its member countries.

AMI Revolution Will Not Be Muted

By Mandla Hadebe, Acting Director, Economic Justice Network Africa and Mukasiri Sibanda, Tax & Natural Resource Governance Advisor, Tax Justice Network Africa

Over the past few weeks, a coalition of institutions including the Tax Justice Network Africa (TJNA) and the Economic Justice Network Africa (EJNA) have been working to organise this year’s Alternative Minig Indaba. Both TJNA and EJNA have invested in contributing into the platform given the role that it plays in bringing together stakeholders from Africa and across the world to discuss an issue that has continuously ravaged the country resulting in continued high levels of poverty and inequality in the continent.  For this reason, TJNA and EJNA remain committed to contributing to platforms such as the AMI that bring together stakeholders from across spectrums of society.

Both this year and last year, one of the impacts of the Covid-19 virus and the attendant challenges and barriers has been the increased need for effective and efficient communication both for institutions such as TJNA and EJNA as well as movements such as the AMI. The impact of the reduction in inter-personal interactions has made communication essential for movements and platforms such as the Alternative Mining Indaba (AMI) to thrive.

It was upon reflection on the role that the AMI could play as one of the first events of 2021 that the organisers landed on the slogan for this year “The (AMI) Revolution Will Not Be Muted!” We saw it as an opportunity to lay a foundation to showcase how nimble and robust communication can allow for a successful event even in the tough conditions imposed by the global pandemic. Against this background, this year’s AMI will run virtually from 8 to 12 February 2021 under the theme “Building Forward Together, Pivoting the Extractive Sector for Adaptation and Resilience Against Covid-19.”

History is littered with examples of extinct species that failed to adapt to the changes in their environment and this is a risk that the AMI has not taken lightly. Lockdowns, social distancing and other regulatory measures brought in by many governments across the globe to contain the spread of the Covid-19 have made it difficult for people to gather physically to share and discuss topical development issues that affect them – precisely what a traditional indaba is meant to achieve. As such, with the disruption brought by Covid-19, digital meeting spaces have become the new normal. But, as we all know, the issue is not just one of survival, but to make sure that the space remains a vibrant learning space and continues to grow in its influence.

In recognition of the need to create such an environment,  one of the key objectives of the AMI speaks to bolstering the AMI as a multi-stakeholder engagement platform for key topical policy and practice issues on governance of the extractive sector and sustainable development in Africa such as the Africa Mining Vision (AMV) and UN Guiding Principles on Business and Human Rights (UNGPs).

The AMI’s arsenal of communication tools consists of a website, a twitter handle (@AltMiningIndaba) as well as a Facebook page that generally come alive during the annual AMI period normally held early in February in Cape Town, South Africa. It is indeed true that while these tools are useful, they only give a limited insight into the content generated by the AMI and the full extent of its full reach. To address this, this year there will be several AMI events at national, provincial, district, village levels in several countries, all of which we expect to generate significant context-specific content during the AMI. This content will be warehoused on one platform for easy accessibility and greater traction of the AMI movement.

The outputs of the AMI will consist of workshop reports, presentations, pictures, research papers and any other materials generated across the whole value chain that will also be warehoused by the AMI portal, which we hope will serve as a learning and capacity building hub for all stakeholders. Of course, this process does not prohibit the content generators at national level from sharing the information on their own organisational platforms.

AMI will also explore other opportunities to curate conversations on topical issues on the extractives sector and sustainable development on various social media platforms. For instance, AMI will have its own podcast and You-Tube channel dedicated to thematic conversations each month. To start with AMI will set aside the month of February to generate a buzz about how the history of the movement, important milestones, challenges, success stories and opportunities to explore going forward. The month of March will be dedicated to domestic resource mobilisation (DRM) – strengthening tax linkages and curing illicit financial flows (IFFs) from extractives. And as we consider the topics for the remaining months, April could be dedicated to sustainable and responsible growth of artisanal and small-scale mining and so on and so forth. The idea is to create a continuous conversation that any AMI stakeholder should feel comfortable joining and continuing the conversation in their specific contexts.

AMI will leverage its strategic members such as the Tax Justice Network Africa (TJNA), Southern Africa Resource Watch (SARW) and the Third World Network Africa (TNA) as curators for specialised conversations on the extractive sector and sustainable development – tailored along the pillars of the Africa Mining Vision (AMV).

Another area the AMI will explore is to increase its work with the youth and other interested activists to generate blogs on key discussions that take place at the AMI and subsequent events at national and local level. What we will look to developing is a capacity building and mentorship programme that will equip interested activists with writing skills, provide coaching and editing on blogging. There should also be a space to curate the voices of the communities and other important players to spread the message of the AMI.

While the AMI finds itself within an unprecedented environment, it provides us with an opportunity to be innovate in content generation in different countries and curate vital conversations on topical issues on the governance of the extractive sector.

Yes, the AMI will not be muted – and now is the time to ensure the message rings loud and clear.

SADC Countries Should Draw Lessons From Each Other’s Experiences to Harness the Extractive Industry for People’s Benefit

By Veronica Zano, Regional Governance, Research and Policy Officer, SARW and Mukasiri Sibanda, Advisor on Tax and Natural Resource Governance, TJNA

The drama of the U.S election, previously lauded as the beacon of democracy, has grabbed the world’s attention as the incumbent, President Trump, has refused to accept defeat. In electoral processes, every vote must be counted to avoid backsliding on democracy. In the same way, to avoid backsliding into poverty and inequality, Africa must account for every dollar earned from her resource wealth. If revenues for Africa’s mineral wealth were well accounted for, Africa would have a fair escape route out of its totemic developmental challenges. To do this, key actors in the natural resources discourse such as multi-national corporations (MNCs) and politicians should allow for a fair playing field by not rigging the financial systems to stash profits away from tax authorities in Africa.

The recent socio-economic crisis due to the global health pandemic of Covid-19 has offered an opportune moment to discuss the role of taxation in Africa’s extractive industry.  This is due to the critical conversations that have been raised between the sector’s contribution towards domestic resource mobilization (DRM) juxtaposed against many countries’ poor provision of social services in the areas of health, education, water and sanitation in emergency situations and beyond.

Last week 18 civil societies hosted a week-long conversation on illicit financial flows under the title ‘The Pan African Conference on IFFs and Taxation (PAC).’ While the platform brought together the public, academics, politicians, tax authorities and civil societies, there is always a niggling question that must be confronted when influencing developmental processes – so, what has changed? Of course, Africa continues to still grapple with the weight of harnessing her natural resource wealth into a broad-based development dividend which can be equitably be shared and be enjoyed by all her people. Under the weight of such expectations, it is quite fundamental, therefore, to publicly share and reflect on some of the emotive but very critical discussions that took place during PAC 2020. The main idea behind this is to leverage the PAC 2020’s rich conversations for sustenance of public discourse on what it takes to stop the perennial bleeding of natural resource revenue from the continent. A quick win is the contribution to the conversation on Global Day of Action for Action for Tax Justice in the Extractive Industry, Thursday, 19 November 2020 #StopTaxDodging #TaxJustice

PAC 2020 ran from Monday, 9 November to Friday, 13 November 2020, under the theme “The Africa We Want Post COVID-19: Optimizing Domestic Resource Mobilization from the Extractive Sector for Africa’s Transformation.” The global pandemic, Covid-19 has greased the pole that Africa must climb to achieve the UN’s Sustainable Development Goals (SDGs) by 2030, hence the inspiration behind the theme. Before Covid-19, Africa’s infrastructure and service delivery deficits were quite huge characterized by crippled health, education, water and sanitation services.

As a way of ensuring broader public participation during PAC 2020, country and sub regional events were organised on the 9 and 10 November 2020. These events were the building blocks of the continental conversations which happened from the 11th to the 13th of November 2020.  With this motivation, Southern Africa Resource Watch (SARW) and Tax Justice Network Africa (TJNA) convened an online discussion on Trends on IFFs and Taxation in SADC’s natural resource sector on 10 of November 2020. Countries that anchored this discussion comprised of Tanzania, South Africa, Zambia and Zimbabwe. Janet Zhou, the Director of the Zimbabwe Coalition on Debt and Development moderated this session.

SADC has a significantly diverse and rich mineral wealth portfolio which gives the region a strategic lever for lifting the region from the development dungeons. Prices for gold and platinum are currently buoyant. Platinum mines in South Africa and Zimbabwe, for instance, declared bumper revenue in defiance of the economic spell cast by Covid-19 which disrupted production, fractured global trade, and depressed market demand. Further to this, as the global demand for clean energy spikes as a result of heightened pressure to move away from carbon fuels, on paper, SADC’s minerals assets remain in the mix. The abundance of large volumes in copper, cobalt, lithium and nickel, for example, are part of the strategic minerals that are required to spur the just transition to clean energy agenda in the production of key components such as batteries for electronic vehicles.

The discussion kicked off with Dr Claude Kabemba, SARW’s Executive Director decrying the fact that not many inroads have been made since independence on transforming mineral wealth into meaningful development for the continent. Despite an array of initiatives, awareness raising, research, multi-stakeholder engagements and campaigns, the problem is growing. In 2015, the report of the High-Level Panel on IFFs out of Africa estimated that Africa was losing US$50 billion annually. Recently, UNCTAD estimated that Africa was losing close to US$89 billion to IFFs annual. All reports concur that the extractive sector is the major driver of IFFs.

Recent gold rushes in Malawi and Zambia portend well for development prospects yet there are no clear and transparent frameworks in place governing the extraction, presenting room for loopholes in IFFs according to Dr Kabemba. Zimbabwe is said to be losing roughly US$1 billion annually to gold smuggling alone, further emphasized Dr Kabemba. The collateral regional damage caused IFFs is seen in intensification conflicts evidenced in Cabo Delgado, Mozambique. Mukupa Nsenduluka, Oxfam Zambia’s lead person on extractives echoed Dr Kabemba’s sentiments that lack of formalisation of artisanal and small scale mining (ASM) in the gold sector is most likely to haunt Zambia.

Outside the gold sector, Dr Kabemba gave another example on ASM cobalt mining in DRC.  At the peak of cobalt prices, in 2016 and 2017, roughly US$1.8 billion was generated annually by artisanal and small-scale miners (ASMers). However, not even a tenth of it has impacted positively on the livelihoods of these ASMers. In Zimbabwe, over the past three years from 2017 to 2019, official gold deliveries from ASMers surpassed large scale producers. Despite this phenomenal achievement, commensurate socio-economic development in areas where these resources are extracted is hardly tangible. Recognising the growing threat of illicit gold trade in SADC, SARW has prioritized the tracking and monitoring of the gold sector as a key project under its natural resource governance work in the region.

Unable to leverage Zambia’s mineral wealth for development, Ms Nsenduluka indicated that the country had amassed a significant debt burden over the past ten years and that due to mismanagement of resources, Zambia was on the way to becoming the first country, post-Covid-19, to default in terms of loan repayments. This highlighted the corrosive impact of IFFs according to Ms Nsenduluka. The report produced by Zambia’s Financial Intelligence Corporation (FIC) revealed that Zambia annually loses US$3 billion to IFFs.  To shine light on the economic significance of copper mining in Zambia, Mukupa highlighted that copper contributes 10% to the country’s GDP, and 78.4% to total export earnings. Despite these challenges, significant progress has been made on legal reforms critical to curb IFFs, but institutional weakness remain a huge challenge according to Mukupa. Zambia is part of the Extractive Industry Transparency Initiative (EITI) which has resulted in tightened of transfer pricing regulations and public beneficial ownership disclosure under the new Companies Act.

Speaking to Zimbabwe’s situation, Josephine Chiname, a legal officer with Zimbabwe Environmental Law Association (ZELA) indicated that in January this year, Zimbabwe included beneficial ownership disclosure in the new Companies and Other Business Entities Act as well but this registry is not publicly accessible. Additionally, Zimbabwe has been going around in circles on the adoption of EITI according.

In Tanzania, Silas Olan’g, Africa’s Co-Director of the Natural Resource Governance Institute (NRGI) spoke of several reforms that have been undertaken in the past 5 years which aimed at repositioning the country to benefit more from its mineral wealth. This has resulted in the enactment of laws to reinforce the country’s sovereignty over its mineral wealth, mining contract renegotiations, the upward review of mining royalties, and an end to perpetual carry over of mining losses and free state equity participation (16%) in mining. Some of the renegotiated contracts included 3 for Acacia with Barwick,  1 with Anglo-Gold Ashanti and a production sharing arrangement in the gas sector. In the re-negotiated contracts with Barwick, the country and Barwick will get 50:50 benefit sharing arrangement. It is not clear though, whether the new arrangement will deliver improved revenue flows because the definition of economic benefits was broadened to include labour, cautioned Olan’g. Political will to renegotiate the contracts is there but technical capacity constraints may prove to be a hinderance on how to amplify benefits from contract renegotiations.

Josephine Chiname opined that Zimbabwe seems to have taken the opposite path to Tanzania: (a) Mining companies can still carry over their losses in perpetuity; (b) government missed the opportunity to renegotiate contracts in the platinum sector after the expiration of the 25-year stabilization agreement; (c) and government is reversed the indigenization drive under the Zimbabwe is open for business mantra. South Africa which started the Black Economic Empowerment (BBE) years before Zimbabwe has not reversed its policy direction. Communities are required to get 5%, likewise with employees and 20% for local businesspeople. The portion for local business, however, has been taken by a few greedy and politically well-connected people said Thembinkosi Dlamini, with Oxfam South Africa.

Past studies led by religious leaders in Tanzania for the period of 2012-1016 depicted how tax incentives had resulted in a loss of US$288 million amounting to 16% of government revenue loss. In Zimbabwe, the true picture of the impact of tax incentives is a blurred one. Despite a commitment to improve transparency and accountability of tax incentives in the 2019 national budget, tangible results have not been realized to date. Whilst data on tax incentives is opaque, the 2015 revenue performance report generated by the country’s tax collector, the Zimbabwe Revenue Authority (ZIMRA) disclosed that US$100 million was lost due to the 25-year stabilization clause on platinum royalties.

From the various country experiences on curbing IFFs and strengthening tax linkages in the extractive sector, SADC countries must surely learn and profit from each other’s experiences. Tanzania has renegotiated major mining agreements whilst Zimbabwe passed on the opportunity to do the same in the platinum sector. A careful learning on what worked well, what must be improved and what did not work in the case of Tanzania’s thrust to renegotiate mining contracts is needed. If not careful, SADC might squander the opportunity to obtain a commensurate share of government revenue from a boom for gold and platinum group of metals. Zambia has laws that provide for public disclosure of the beneficial ownership registry whereas the reforms in Zimbabwe fall short on making beneficial ownership disclosure public. As for gold rushes in Malawi and Zambia if the governance process fails to draw lessons from developments in Zimbabwe, a similar fate of rampant smuggling will be encountered. The ASM sector, a key component of mining in SADC must be supported to ensure that ASMers and communities were the resources are extracted are not short- changed on benefits. Tax incentives must be monitored and evaluated to ensure they achieve a fair balance between attracting investment and filling of government coffers. More importantly, the risk of regional harmonization of taxes is vital to avoid harmful tax competition, the race to the bottom among SADC member states in the quest to attract investment.

2021 national budget must use mining as a lever for domestic resource mobilisation

A case for public participation during budget formulation

As a concerned citizen, and a socio-economic justice activist, I am severely disturbed by how the pandemic, COVID-19, is piling more pressure on progressive realisation of socio-economic rights. Prior to COVID-19, developing countries like Zimbabwe were struggling to provide access to quality, reliable and affordable  essential services like education, health, water, food and shelter are part of the basic rights guaranteed by the Constitution. Openly, the Constitution acknowledges that the provision of essential services to the public is subject to the limitation of resources available.

Obviously, how government intends to mobilise and utilise revenue has a huge bearing on the realisation of the socio-economic rights. Citizens must therefore hold government accountable by actively participating in the design and implementation of fiscal policies that has a direct bearing on the fragility or strength of the State to provide them with essential services. And public pre-budget consultations are an important space for stakeholders, particularly citizens, to influence how government plans to raise and spend revenue.

Taxation critical to address the widening inequality gap

Government’s primary source of revenue is taxation, citizens and corporates are the contributors. Before we jump to the expenditure side of the budget, taxation is the first port of call when it comes to the agenda of fighting inequality in line with the Sustainable Development Goal (SDG) number 10. For those who love soccer, the jersey number 10 is imperatively reserved for the most creative and influential player in the team like Lionel Messi for Barcelona. This is just to illustrate how important the fight against inequality is, hence the symbolic number 10 of the team of UN’s Sustainable Development Goals (SDGs).

Understanding the roles of taxation a critical ingredient for public participation

The 4 roles of taxation are quite crucial for Citizens to understand its massive influence to their standard of living. Taxation is a tool of revenue raising for government to fund the delivery of essential services to its citizens; it can be used to redistribute wealth; it can be used to discourage the consumption of toxic goods like alcohol and tobacco; and it gives citizens a voice in the generation and utilization of public funds. If the wealthy individuals and corporates are not paying their fair share of taxes, the poor citizens are incidentally saddled with the burden of contributing a higher proportion of their income as taxes compared to the rich. In this case, tax is deemed to be regressive and the opposite scenario is deemed as a progressive tax regime. Taking into consideration that Zimbabwe is a mineral rich country, and increasingly the economy is dependent on mining and minerals, a finite resource, domestic resource mobilisation from this sector deserves greater public attention in the formulation of the national budget.

ZAMI influencing budget input

Rightly so and as used the information gathered from the 9th edition of Zimbabwe Alternative Mining Indaba (ZAMI) held at Holiday Inn, Bulawayo from 30 September to 02 October 2020.  ZAMI has emerged of the past decade as an important platform for communities and citizens to engage with stakeholders- government, industry and Parliament on how mining can deliver a sustainable national dividend.  Befittingly, the 9th edition of ZAMI was themes “Towards an inclusive and equitable US$12 billion mining industry anchored on sustainable mineral resource management.” Resource dependent growth, as highlighted by the report of the high level panel on illicit financial flows (IFFs) out of Africa faces is prone to huge revenue leakages. Challenges highlighted in the report are “… transfer mispricing, secret and poorly negotiated contracts, overly generous tax incentives and under invoicing.” The fact that for the past decade, mining contributed over 50 cents to every dollar earned from total export earnings makes the country taxation regime highly regressive – greater likelihood of mineral wealth not contributing a proportionate share of taxes from mineral revenue because of huge IFFs risk. 

Platinum royalties must be reviewed to be a progressive tool for domestic resource mobilisation

In 2015, the country’s purse suffered a hemorrhage of US$101 million after the Zimbabwe Revenue Authority (ZIMRA) lost a court battle against one the country’s biggest mines, the Zimbabwe Platinum Mines (Zimplats). The battle was on the legality of the 25 year (1994-2019) stabilization clause, pegging the royalty rate at 2.5%. ZIMRA had proceeded to garnish funds from Zimplats using the 10% royalty rate prescribed by the Finance Act. The court ruled that royalties are principally administered under the Mines and Minerals Act and the agreement between the Minister of Mines and Zimplats takes precedence over the Finance Act.

 A commitment was made in the 2019 national budget that platinum royalty rates were going to be reviewed in August 2019, the period marking the lapse of the 25 year royalty stabilization agreement. This opportunity was missed by the 2019 midterm budget review and subsequent fiscal policies have been mum on the issues. Given the multiplied pressure on government to raise revenue under the strain of COVID-19, accordingly, government must review platinum royalty rates upwards using a sliding scale. The royalty sliding scale is self-adjusting, the higher the mineral prices, the higher the royalty income and vice versa is true. In the gold sector, a royalty sliding scale was introduced in October 2018.

Although generally referred to as platinum, the mineral is a group of metals, in addition to platinum, comprising of palladium, rhodium, ruthenium, iridium and osmium. Other by products include gold, silver, copper, nickel and cobalt. Despite COOVID-19 related challenges, platinum mines in Zimbabwe recorded bumper revenues. This was attributed to favourable market prices for palladium, rhodium, nickel and gold. The sliding royalty regime for the platinum sector must target specific minerals that are part of the Platinum Group of Metals (PGMs) as other related minerals are high performers compared to platinum.

Weed out harmful tax incentives

Another commitment that the Treasury has not fully complied with is transparency and accountability of tax incentives – tax revenue forgone in the quest to attract Foreign Direct Investment (FDI). Tax incentives, if not well administered, can deflate government’s domestic resource mobilisation drive. The 2021 budget must disclose tax revenue forgone and carry out a cost benefit analysis of tax incentives to weed out toxic tax incentives.

No backsliding on mining sector transparency reforms

Another commitment that government must not backslide on is to improve transparency and accountability in the mining sector by joining the Extractive Industry Transparency Initiative (EITI). Focus on EITI must not overlook low hanging fruits to improve transparency in the mining sector. ZIMRA’s revenue performance reports that are produced quarterly and annually can be improved to show mining sector performance per each tax revenue head – Corporate Income Tax (CIT), customs duty, withholding taxes, Value Added Tax (VAT) and Pay as You Earn (PAYE). Currently, royalties are the only mineral revenue stream that is separately accounted for. Further disaggregation is required to show mining sector performance per each major mineral sector like platinum, gold, nickel, diamonds, chrome and lithium. These reforms are aligned to the principles of public financial management included under Section 298 of the Constitution requiring revenue and expenditure transparency and accountability.

Embrace contract disclosure and competitive bidding

Existing contracts and those that are in the pipeline must be subjected to Parliament and made public as required by the Constitution under Section 315 (2) (c). Such a move is crucial to ensure that bad deals are avoided as both government and corporate negotiators will be aware that there is a third eye to the contract negotiations. Competitive bidding, when disposing mineral rights in areas with high geological potential, like the Great Dyke, must be harnessed to ensure investors that offer a higher development dividend are selected. Areas for assessment include tax linkages, technological transfer, local procurement, employment and skills development and infrastructure linkages.

Investments from tax havens are a poisoned chalice

Competitive bidding is also an opportunity to quarantine investors that are linked with tax havens who carry a high risk of shifting profits from producer countries to lower tax or no tax jurisdictions that are secretive. As Leonard Wanyama, Coordinator of East Africa Tax and Governance Network (EATGN) aptly sums up his article,   secretive, aggressive and extensive jurisdictions help multinationals escape paying taxes, eroding revenue collection measures in other countries. To root out endemic corruption, the budget must push for beneficial ownership disclosure. Knowing the real beneficiaries behind the mega deals sealed in the mining sector and recipients of public procurement contracts who use the mask of corporate bodies and trustees to hide their shameless acts is quite critical. It is a positive step the in January 2019, the Companies and Other Entities Act accommodate beneficial ownership as part of the new legal require. However, it fell short as the beneficial ownership registry not publicly accessible. Countries like Nigeria have made beneficial ownership disclosure as part of the reforms to step corruption and illicit financial flows.

Open for business but don’t shut the door on community benefits

Under the Zimbabwe is open for business drive, the indigenization and economic empowerment framework was dismantled, with it, legal backing for Community Share Ownership Trusts was affected.  To redress this situation which conflict with Section 13 of the Constitution on national development, impelling the State to put mechanisms for communities to benefit from resources in their localities, the budget must plough back a portion of resources to areas where the resources are extracted. To respond to this threat, the budget must promote transparency in the mining sector – tax revenues, contracts and beneficial ownership disclosures including monitoring and evaluation of tax incentives must be part of the measures adopted to curb corruption and IFFs. The royalties for all minerals, particularly the PGMs must have a sliding scale to capture a proportionate share of revenue during the commodity price boom. Investors are needed to unlock the growth potential of the mining sector. However, investments channeled through tax havens like Mauritius are a poisoned chalice and must be quarantined.

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