Mapirimira Primary Schoo.JPG

Mapirimira Primary School along the Great Dyke in Zvishavane

Introduction

Globally, the mining sector has gained notoriety for not paying its fair share of taxes to mineral rich and mineral dependant countries. African countries being the most affected. Consequently, curbing Illicit Financial Flows (IFFs), illegal and immoral but legal activities, is high on the agenda for development finance. Sustainable Development Goals (SDGs) will forever remain a mirage to be pursued and never attained without stopping the bleeding of Africa’s finance for development. Curbing IFFs can be quite complex and challenging for many institutional weak African governments. It is worrisome though that several mineral rich governments resort to toxic sweetheart fiscal incentives to promote investments in the sector. The result is a diminished flow of mineral tax revenue. Ultimately, this affects much needed funding for social protection programmes that reduce poverty and inequality. This blog seeks to stimulate the fiscal justice or tax justice public discourse in Zimbabwe. Mainly focusing on the 5% export incentive scheme administered by the Reserve Bank of Zimbabwe (RBZ). Already, Gilbert Makore, a close colleague and mentor, started the ball rolling on 7 March 2017, through his blog: Does the RBZ Export Incentives for Mining Need a Rethink?

Has RBZ scrapped mining royalties indirectly through export incentives?

Mineral exports contribute about half of Zimbabwe’s total export earnings. Automatically, this makes the mining sector the largest beneficiary of RBZ’s 5% export scheme. According to Zimstat data, mining contributed $362 million to overall exporting earnings amounting to $724 million in the first quarter. As such, $18,1 million accrued to mining houses and artisanal and small scale miners through 5% export incentive derived from $362 million export earnings. At the same time, mineral royalties amounted to $16,4 million according to the Zimbabwe Revenue Authority (ZIMRA)’s first quarter revenue performance report as at 31 March 2017. Given that export incentives to the mining sector outstrips royalties by $1.7 million, it can be argued that mining royalties have effectively been scrapped.

Royalties, it must be noted, are the only income stream from mining that is easy to administer and less susceptible from tax evasion and tax avoidance unlike income tax. Because of lack of disaggregated mineral tax revenue data from ZIMRA’s revenue performance reports, it is not possible to weigh the export incentive benefit to mining houses against overall tax contribution. Suffice to say, corporate income tax contribution from all economic activities including mining, agriculture, tourism and manufacturing among others is always dwarfed by Value Added Tax (VAT) and Pay As You Earn (PAYE). This points to the regressive nature of our tax regime. Corporates are not paying their fair share of taxes. The poor unfairly shoulder the tax burden. Regrettably, government is on the drive to raise more indirect taxes as manifested by the aborted Statutory Instrument 20 of 2017 that sought to expand VAT to some selected basic commodities like meat.

Some interesting points to consider

  • Mineral annual export earnings are expected to reach $3 billion this year. Therefore, export incentives accruable to the mining sector for 2017 are likely to be $150 million. It is not clear though how much taxes will be paid by mining companies this year due to limited disclosure of taxes paid by mining houses and mining taxes received by government. That is why mandatory disclosure of payments made to government by listed mining companies from EU, UK and Canada are a welcome transparency lift. Unfortunately, Trump administration has chosen to play a spoiler.
  • $150 million export incentive benefit to mining houses is 254% more than the entire operational and capital budget for the national health care programme as per the 2017 national budget statement. Out of $281.9 million allocated to the health sector, salaries will gobble $223 million leaving a balance of $58.9 million.
  • Government is failing to honour constitutional obligations to share at least 5% of national revenue with local authorities. In turn, this is hurting the mandate of local authorities to deliver social services critical to the progressive realisation of socio-economic rights. Puzzlingly, government can afford to pay 5% export incentives mainly to corporates and artisanal and small scale miners.
  • Where is our broke government getting the funds to finance the RBZ export incentives scheme? It has been said that the export incentives will be financed from a $200 million loan from Afrexim bank and government is willing to borrow more to finance the export incentive scheme.
  • Export incentives are given to stimulate export earnings needed to solve severe foreign currency shortages. Currently, RBZ is facing a conundrum when it comes to payments of imports such as capital goods and raw materials needed to boost economic growth. However, it is bothersome that prioritisation of foreign exchange earnings is quite problematic. For instance, the president’s incessant foreign trips, import of luxury cars and miscellaneous items like pampers.
  • To boost production in the mining sector, as Gilbert Makore argued in his blog, government must consider other enablers like policy consistency, political risk and adequate geo-scientific information rather than export incentives.
  • On one hand government is struggling to encourage mineral beneficiation and value addition through export tax on unrefined platinum, chrome and rough diamonds. On the other hand, government is giving 5% export incentives to mineral exports that are largely raw.
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