By Richard Ncube & Mukasiri Sibanda
To funnel gold produced by artisanal miners into the formal market, Government introduced a policy to buy gold on no questions asked basis in 2014 through the National Budget Statement. A move designed to stop the arrest of artisanal gold miners whose activities are criminalised under the Mines and Minerals Act and the Gold Trade Act. It is illegal to prospect or mine any mineral without the requisite license under the Mines and Minerals Act. The Gold Trade Act makes it a criminal offence for one to trade in gold without a gold buying license or a mining license. Artisanal mining, it must be noted that it was an integral part of livelihoods during precolonial times. Well documented it is that several large-scale gold mining operations in Zimbabwe are a result of upscaling the working of artisanal gold mining. This article carries out an impact assessment of the move to buy gold on no questions asked basis.
Large scale gold producers evading royalties: investigate & bring culprits to book
The 2019 Budget Review Statement included interesting policy proposals with a telling impact on artisanal and small-scale gold mining (ASGM). Royalties payable by artisanal and small-scale gold miners (ASMers) were increased from 1% to 2%. According the Budget Review, this move was triggered by the desire to curb arbitrage opportunities as some large-scale miners were now delivering gold as ASMers to take advantage of the lower royalty regime. Royalties for large scale gold producers are pegged at 5% and 3% for any annual incremental production. Therefore, it can be argued that instead of paying 5 cents royalties per every dollar earned by large scale gold producers, some producers were paying 1 cent. This means that 4 cents were being syphoned from the fiscus per every dollar earned by some unscrupulous large-scale gold miners.
Production in the ASM has been rising phenomenally since 2014 when gold royalty rates were tinkered with to ensure ASMers pay 1% and large-scale producers pay 5%. In 2014, 3.9 tonnes were delivered to Fidelity Printers and Refiners (FPR) by ASMers. Last year – 2018, ASM allegedly contributed to record breaking gold deliveries to FPR. ASMers contributed 21.7 tonnes to total gold deliveries amounting to 33.2 tonnes. It must the flagged that the Budget Review allegedly accuse some large-scale gold producers of tax evasion. It defies logic that the Budget Review failed to recommend investigation of this malpractice which greatly prejudiced the fiscus. Instead of dealing with truant actors, the Budget Review tightened screws on ASMers by increasing a royalty rate from 1% to 2%. What this means in effect is that instead of stealing 4 cents, the unscrupulous large-scale miners can now still 3 cents. This move by the treasury is by all means to the detriment of ASMers. They are being punished for the sins of the large-scale miners. It is vital for the state not to just impose baseless taxes but to adhere to the principles of administrative justice in terms of section 68 of the Constitution.
Tax burden must be shared equitably
Considering that the Budget Review decided to increase gold royalties paid by ASM miners, it is critical to talk about tax justice – whether the State is raising and utilising public revenue in a transparent, accountable, fair and progressive manner. Section 298 of the Constitution of Zimbabwe 2013 on principles of public financial management (PFM) offers a clear entry point on tax justice as a rights-based approach. One of the constitutional principles on PFM directs that the burden of taxation must be shared equitable.
It must be noted that 2% gold royalties for ASM is slightly lower the 2.5% royalties paid by large scale platinum miners. Further, platinum royalty rates which were once pegged at 10% were reduced to 2.5% and the rate is now half of the gold royalty rate for large scale gold producers which is pegged at 5%. Clearly, the burden of taxation is not equitable shared here. The Treasury must honour its pledge made through the 2018 National Budget Statement to review platinum royalty rates in August 2019.
Tax and value for money
Government’s quest to turn mining into an economic growth engine by achieving US$12 billion annual revenue will worsen inequality if mining linkages are not strengthened. In the case of Nyambirai vs NSSA 1995 (2) ZLR the court observed that tax has to be used for the benefit of the public or to provide a service in the public interest. To that end it important for the state to impose taxes that meant for public interest not to worsen the life and business of people.
Another Tax Justice issue is that the State must accommodate the concerns of tax payers and deliver value for money. The Budget Review failed to explain the value proposition of increasing gold royalty rates to ASMers and communities where the gold is extracted. Several factors which strangle ASM must be addressed by the State to make the sector sustainable. Among others, the use mercury, lack technical skills, poor health, safety and environment practice, and widespread violence leading to “bloody gold.”
Government must therefore use a portion of taxes raised from gold mining to invest in research to drive innovation of smart and clean gold processing and recovery technologies to eliminate the use of mercury. As part of the vision to achieve a US$12 billion industry by 2023, Ministry of Mines is angling an annual gold production of 100 tonnes. Without cleaner gold processing technologies, an ecological disaster is looming. Mercury is harmful both to health and the environment. Also, government must set up a disaster management fund to help to prevent or respond to safety challenges like the Battlefields Mine disaster which claimed lives of 29 ASMers. Communities must not be left behind, taxes raised from gold mining must be equitable shared between government and local authorities to spur local economic and social development.
Debate on the impact of buying gold on questions asked basis
From a debate on the utility of the no questions asked policy which involved ASMers from Gwanda, Bubi, Zvishavane and Mberengwa, interesting discussion points emerged.
Those that argued that the no questions asked policy was a necessary policy intervention noted the following points.
- Decriminalisation of ASM is in line with the spirit of the Constitution, Section 13 (4) which requires the State to put mechanisms to ensure communities benefit from resources in their localities. Additionally, ASM is embraced by the Africa Mining Vision (AMV), a continental blue-print offering guidance to resource rich countries on how they can harness the propulsive potential of abundant mineral wealth to spur sustainable and broad based socio-economic development.
- The policy has contributed to reduced corruption because ASMers are no longer arrested for operating for not complying with the burdensome Mines and Minerals Act and Gold Trade Act. Because of the heavy penalties prescribed by the law for illegal gold mining and illegal possession of gold, police were allegedly demanding bribes to ensure ASMers do not face the full wrath of the law.
- Because AMSers are no longer fear getting arrested, the no questions asked policy is behind record breaking gold deliveries to FPR.
- Illicit financial flows have been reduced since ASMers funnel their gold on the formal market leading to increased foreign currency generation capacity and improved contribution to the fiscus.
- Stop criminalisation of a livelihood
Arguments against buying gold on no questions asked basis
- Increased criminality in ASM – violence, theft or ore and disrespect of property rights were all triggered by the policy to buy gold on questions asked policy.
- Because of increased lawless, the laws of the country, Mines and Minerals Act and the Gold Trade Act are being flouted including international best practice, for example, OECD Diligence Guidelines on Responsible Mineral Supply Chains.
- The policy is fuelling tax evasion challenges. According the 2019 Budget Review, lamented that large scale gold miners were evading taxes by disposing their gold as ASMers.
- This policy was introduced as a stop gap measure to help formalisation of ASMers and its continued use without monitoring and evaluation of progress is a major setback on legal recognition of artisanal mining. why government has not seriously made a positive policy reform to formalise artisanal mining.
- Safety disasters affecting ASM are catalysed by the no questions asked policy as illegal miners have space to sell their gold without traceability of where the gold is mined.
It is apparent from the discussion above that the State needs to be clear on its position relating to the no questions asked policy. The policy was never meant to last long, rather to encourage artisanal miners to formalise their operations. We therefore urge the responsible authorities to address this issue as a matter of urgency. Further to this, the issue of tax justice raised herein also needs to be addressed. An investigation is required to bring to book large scale gold miners who evaded paying required gold royalty fees. Taxes raised from ASM must be used to promote sustainable development of the sectors and for the benefit of communities where the gold is produced.