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Great Dyke Alternative Mining Indaba: A Focus on Tax Justice Campaign


By Mukasiri Sibanda

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07 July 2017



“Certainly, local government’s fiscal capabilities to deliver quality services like schools, clinics and roads will be enhanced if national government share revenue with local government as desired by the constitution.” Mr G Moyo, Runde RDC CEO.

“CSOs and communities should take advantage of the upcoming national budget public consultations to attend in numbers and to make their voice count on how national resources are generated, allocated and utilised to meet their needs” Hon John Holder

“This will enable us to follow our money so that we can promote accountability in the management of mineral revenue to get schools, clinics, roads, water and sanitation from our government” Eunica Pabwakavungana, a PWYP community data extractor on disclosure of payments made to government by mining companies and disclosure of minerals revenue raised and spent by government.

“Tax is an important to redistribute wealth. Some areas that are not so blessed with mineral wealth should also get a fair share of revenue from mineral wealth extraction” Tinashe Gumbo with ZIMCODD

This article shares some key discussions and recommendations that emerged during the tax justice break away session of the 5th edition of the Great Dyke Alternative Mining Indaba held in Gweru on 4 and 5 July 2017. The discussants included a Publish What You Pay (PWYP) community data extractor, a legislator, local government CEO and an activist from the Zimbabwe Coalition on Debt and Development (ZIMCODD). Critical issues that were discussed during the Tax justice break away session were the regressive local mining tax system, revenue sharing between national and local government, experiences of a community data extractor and opportunities presented by the upcoming national and local budget consultations.

The indaba’s theme was “Responsible and accountable governance of minerals”. Over one hundred people participated at the indaba. Participants came from various stakeholder groupings like mining impacted communities from Zvishavane, Shurugwi, Mhondoro Ngezi and Gwanda; traditional chiefs, legislators, artisanal and small scale miners, media and government. This indaba was organised by the Zimbabwe Environmental Law Association (ZELA) in partnership with ZIMCODD and the Zimbabwe Council of Churches (ZCC). Some of the topical issues that were discussed are; Enhancing business linkages, investments and diversification; Promoting responsible and sustainable growth of artisanal and small scale gold mining; Tax justice, Business and human rights and Community engagement and local development.

Regressive local mining tax system.

Local government is empowered by the Third Schedule of the Rural District Council Act and the Constitution to use tax as a tool to finance local economic and social service delivery. If mining companies pay their fair share of taxes to rural districts councils, mineral revenues ideally should largely finance local service delivery. However, the regressive local mining tax system inhibit the flow of development finance from mining activities.

The local tax system for the mining sector is regressive in that where precious minerals liked diamond, gold and platinum are exploited, labour is used a unit to calculated taxes to be paid according to the Third Schedule of the RDC Act. As an example, the first unit ranges from 1 to 99 workers and the second unit ranges from 100 to 149 workers. In the case of base metals like chrome, unit taxes are based on production volumes. Room is left in the Act for RDCs to negotiate with mining companies the price to be paid per each unit. This negotiation process is annual since it is tied to the annual local government budgeting process. Depending on the bargaining power of the local government, a good deal or poor deal can be struck.

Since production in the mining sector is now capital intensive, employment opportunities in the mining sector are now limited. This renders labour a regressive unit for calculating local taxes. Whilst technology has boosted mineral production, the number of employees is still being used to calculate local mining taxes. As a result, when those that are earning more are paying a lesser share of their income, the tax system is deemed to be regressive. The tax burden will be shouldered disproportionately by those that earn less in society. A situation that perpetuates inequality. In the end, women and other vulnerable groups are hit hardest. Regressive tax systems are a violation of the constitutional principle on public financial management which states that the tax burden must be shared fairly.

Constitutional revenue sharing formula between national and local government not being followed

Section 301 of the Constitution provides for allocation of revenue between national, provincial and local government tiers. Subsection 3 prescribes that “not less 5% of national generated revenue in that financial year must be allocated to provincial and local governments as their share in that year.” However, since the new Constitution was passed in 2013, the national budgeted has failed to share with local governments national revenues as provided for by the Constitution.

Given that the 2017 national budget projected national revenue at $3,7 billion, at least $185 million was supposed to trickle down to local governments. “Certainly, local government’s fiscal capabilities to deliver quality services like schools, clinics and roads will be enhanced if national government share revenue with local government as desired by the constitution” Runde RDC CEO. It is disheartening to note that Parliament has been passing budgets which clearly violates the Constitution on revenue allocation concerning the three tiers of government. Civil society have also not coalesced to pressure Parliament and the executive to uphold the Constitution.

Innovation is key to mitigate mired mineral revenue transparency reforms

For the past 6 years, Government through the national budget statements has been consistent in its calls for the adoption of the Extractive Industry Transparency Initiative (EITI) or its domestic version the Zimbabwe Mineral Revenue Transparency Initiative (ZMRTI). Still, mineral revenue transparency reforms have not come to fruition. Therefore, CSOs, community data extractors, legislators and the media must make use of data coming from mandatory disclosure of payments made to government by Multi National Enterprises (MNEs) listed in Canada, UK and EU.

In addition, innovation is key. CSOs and communities can work with local governments and mining companies to push for voluntary disclosure of payments made by mining companies to local government and payments received by government. In Zvishavane, Mimosa Mines has shown commitment to disclose various payments it makes to government. Likewise, Runde Rural District Council has indicated willingness to disclose payments received from mining companies and mining agreements under its jurisdiction.

“We are open to work with stakeholders to follow best practice on mineral revenue transparency at local government level” Runde RDC CEO

Whilst Zimbabwe is lagging on embracing international best practice on mineral revenue transparency, the is room for CSOs and Communities to exploit low hanging fruits through engaging with progressive local governments and mining companies. Off course, payments made by mining companies to local government are meagre when compared to national government which limits the impact of transparency at local government level. However, should these improvised local versions of EITI materialise, small as the victory might appear to some, it is an important step towards citizens driven mineral revenue transparency policy and practice reforms.

Community data extractors and demand driven transparency and accountability

Eunica Pabwakavungana (female) a community data extractors shared her experience on community data extraction. “We want to know how much taxes are being paid to local and national government by mining companies and why they are paying. That is why we are saying to mining companies publish what you pay and the reasons why you are paying, that is, the disclosure of tax agreements. Local and central government should publish what they earn from mining companies and how they spend. This will enable us to follow our money so that we can promote accountability in the management of mineral revenue to get schools, clinics, roads, water and sanitation from our government. Lastly, we want mining companies to publish how they extract. This means that information like Environmental Impact Assessments (EIAs) should be made public.

Spurred by the knowledge of opportunities presented by mandatory disclosure of payments made to governments by UK listed companies, Shurugwi data extractors successfully approached Anglo-American owned Unki mine for disclosure of payments made to their local government, Tongogara Rural District Council (TRDC). The data extractors are now waiting to engage with their local government during the upcoming 2018 budget public consultations on disclosure of payments received from mining companies per project. Also, data extractors will engage their local government on contract negotiations of tax rates to be paid by mining companies. This data will help communities to publicly reconcile payments made to local government by mining companies with payments received by local government from mining companies.

CSOs like the Zimbabwe Environmental Law Association (ZELA) could have provided communities with this information from the website. However, the motivation was to empower communities to confidently drive demand for transparency targeted at duty bearers, mining and government in this case.

Often, communities and CSOs have been accused largely by mining companies that their demands were not specific and clear. This is what motivated Publish What You Pay campaign to pilot a community data extractors programme in Shurugwi and Marange. Overall communities were equipped with skills on how to extract data, analyse data and use data to demand the change that communities want to see. Community data extractors were urged not to use an adversarial approach when engaging with mining companies and government. Key areas of interest for community data extractors include taxes paid to both local and national government, employment and skills development, community enterprise development, community share ownership trusts, corporate social investments and environmental management.

Oversight role of parliament in the management of mineral revenues

Parliament, through the Portfolio Committee of Mines and Energy conducts public hearings and field visits to investigate loopholes in the management of mineral resources and then make some recommendations to the executive. The challenge is that Parliament has no power to enforce its recommendations to the executive.
“CSOs and communities should take advantage of the upcoming national budget public consultations to attend in numbers and to make their voice count on how national resources are generated, allocated and utilised to meet their needs” Hon John Holder

Communities however complained that poor public participation during national budget consultation meetings is caused by poor communication of the meeting dates and venues.
“This year Parliament is going to change the advertising of public budget consultation meetings and work with civil society organisations such as ZELA to mobilise the grassroots” Mr E Nyamuramba, Public Relations, Parliament of Zimbabwe.

Upon being asked if it is feasible for Parliament to block the national budget if it fails to allocate at least 5% of national revenue to local governments, Hon Holder explained that the whipping system presents challenges.

Tax justice issues for communities and civil society

This topic was shared by Tinashe Gumbo of the Zimbabwe Coalition on Debt and Development (ZIMCODD)
Roles of taxation are quite important to understand the nexus of tax and development. The roles include revenue raising, redistribution of wealth, representation and repricing. Zimbabwe’s abundant mineral wealth offers exciting opportunities for reliable domestic resource mobilisation (DRM) to finance development. DRM is important considering that official development assistance and foreign direct investment are unpredictable and dwindling. Therefore, government and mining companies must curb corruption, illicit financial flows and harmful tax incentives which inhibit optimal tax revenue flows. Redistribution of wealth is achieved through pro poor expenditure of tax revenue mainly generated from the rich.

Without efficient and transparent public financial systems, it is difficult for government to effectively redistribute wealth. That is why the Auditor General’s reports that have gory details of fruitless and wasteful expenditure, corruption and abuse of public resources should be fodder for CSOs and communities to hold government to account on fighting inequality. This point leads to another role of taxation which is representation. Since almost all citizens pay taxes to government one way or another, public scrutiny to hold government accountable on how revenue is generated, allocated and utilised is quite important. Follow the money. The last role deals with repricing. Government can deter consumption of certain goods like alcohol and tobacco by increasing taxes.

Recommendations

The regressive local mining tax system must be reformed to make it progressive by changing from labour to production volumes as a basis for computing taxes to be paid to local government.

The national budget must be expressive or reflective of the constitutional requirement to allocate at least 5% of national revenue generated in any given financial year to provincial and local governments.

If the national budget fails to comply with the constitutional requirement to allocate at 5% of national revenue to provincial and local governments, CSOs and communities must petition to Parliament or appeal to the constitutional court to enforce compliance.

The PWYP community data extractors programme must be broadened and be supported with tools and resources to drive community driven agenda for change on how their mineral resources should be managed and utilised to meet their needs.

CSOs and communities should take advantage of the upcoming local and national budget public consultations to attend in numbers and to make their voice count on how national resources are generated, allocated and utilised to meet their needs

CSOs and communities must innovate in the face of stalled mineral revenue transparency reforms and work with progressive government agencies and mining companies on mineral revenue disclosure.

Government must implement the office of the Auditor General’s recommendations to stop fruitless and wasteful expenditures, corruption and abuse of public resources that hurts the poor and vulnerable groups of society.

CSOs and CBOs must make use of mandatory disclosures of payments made to government by mining companies listed in UK, EU and Canada such Unki Mine owned by Anglo American.


Mukasiri Sibanda (@mukasiri) is an economic governance officer. He is interested in mineral resource governance. He blogs at Mukasiri's Blog. Mukasiri works with the Zimbabwe Environmental law Association