Tax incentives: The good and the bad

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18 February 2022

The global financial and taxation system has undergone various shocks and changes. New challenges have continued to emerge that have affected developing nations’ capacity to domestically mobilise resources. 

In Zimbabwe, tax incentives have remained one of the Government’s primary tools to attract foreign direct investments, particularly in the mining sector. Tax revenue forgone in 2020 amounted to ZWL$111.55 billion against an actual revenue collection of ZWL$171.9 billion, accounting for 65% of total government revenue (ZIMRA’s 2020 Annual Report).

Civil Society Organizations (CSOs) such as Zimbabwe Environmental Law Association (ZELA) have been calling for transparency and accountability in the awarding and administration of tax incentives. It is against this background that the organisation in partnership with Tax Justice Network Africa (TJNA) and the Stop the Bleeding Campaign (SBC) convened a capacity building workshop on Transparency Initiatives with a specific focus on Tax incentives and Beneficial Ownership. The workshop held in Bulawayo ran from the 16th-17th of February 2022 was attended by civil society organizations, government institutions, Members of Parliament and journalists.

Several sessions were dedicated at discussing issues to do with tax incentives. During these sessions the CSOs, the parliament, Ministry of Finance and Economic Development (MoFED), Zimbabwe Revenue Authority (ZIMRA), Ministry of Mines and Mining Development (MMMD) , Institute of Sustainability Africa (INSAF), Chamber of Mines and other stakeholders had the opportunity to give their different perspectives regarding tax incentives. The CSOs managed to bring the social and economic justice perspective, gender perspective, religious and youth perspective among others. They acknowledged that not all tax incentives are bad, but some are harmful while others are issued without a proper cost and benefit analysis.

According to a discussion paper presented by ZELA, the government was appreciated for disclosing the revenue foregone from 2015 to 2021.[1]  However during the discussions, CSO and the parliament budget office had concerns that these were mere summaries in aggregate format. Non-accessibility to disaggregated tax expenditure reports and Public access to information on feasibility plans and economic valuation of proposed mines was also noted.  They were also concerns that in some instances the government had failed to implement the commitments made.  Some of the commitments noted by participants were

  1. Para 225 of NDS promised the reviewing and streamlining of tax incentives. It says: “Government will continuously carry out Cost Benefit Analysis of the existing fiscal incentives in order to guide the review and streamlining those found to be redundant”
  2. In 2019, the government 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.”
  3. The government also made a commitment again  in the 2019 national budget to “review the royalty rates in the platinum sector from the 2.5% which was below the prescribed 10%”, but when the 25-year stabilization agreement lapsed, the government failed to review royalty rates.[2] Some mining organisations also followed suit and started enjoying reduced rates resulting in some revenue having been forgone.

It was clear from the discussion that non-disclosure of contracts should be discouraged. The case in point being that of the Great Dyke Investment (GDI) where a 5-year income tax holiday was granted in terms of the Income Act during the Covid-19 pandemic. The work of Publish what you pay (PWYP), Mining indabas, TJNA issuance of statements on Tax incentives was appreciated. During the discussions the Big tent approach was proposed when it comes to advocacy work.

The Ministry of Mines and Mining Development in explaining the awarding of licenses, indicated that the Mining Act does not classify mines and had no guidelines but hoped that the amended act will resolve such issues. The government was encouraged to come up with a group of experts that will match experts of foreign investors when negotiating deals.

Ministry of Finance and Economic Development (MoFED) presented on the tax incentives policy landscape and indicated that “There are legitimate reasons in favor of issuance of tax incentives, but also strong reasons to believe that the fiscal and economic costs may be very high relative to the benefits. In the case of Zimbabwe, the cumulative revenue forgone from tax incentives such as VAT exemptions and zero-rating, customs duty rebates and income tax exemptions amounted to ZW$3.19 billion or 2% of GDP in 2019.” The ministry indicated that Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) will assist MoFED on research to Evaluate the Impact of Tax Incentives on Socio-Economic Outcomes in Zimbabwe.

MoFED acknowledged that tax expenditure reports were found in budget statements and ZIMRA Chairman’s quarterly reports.  The Ministry encouraged CSOs to continue with social accountability initiatives such as advocacy campaigns, investigative journalism; and participatory public policy making, by involving citizens in the budget preparations stage.

ZIMRA indicated that its role is to administer laws and regulations. The Agency admitted that there are different tax incentives that the mining is enjoying and the Agency is the major beneficiary of such.

Institute of Sustainability Africa (INSAF) brought a corporate accountability perspective, and it was noted that some mining companies in Zimbabwe were not following the standards of Global Reporting Initiative and there was a need for responsible investment.  Case study presented showed that some mining companies are lacking in terms of corporate accountability. ZIMRA was encouraged to place their officers on every mining site as was the case in Canada and Australia.

Parliament Budget Office acknowledged that Zimbabwe had improved on transparency due to advocacy campaigns being undertaken by  CSOs. In terms of public participation, Zimbabwe got a score of 33 /100 a score which is above the global average of 14 and is the best in Africa. The Committee appreciated the CSOs and encouraged them to continue requesting for improved transparency and accountability in the negotiation of mining agreements as enshrined in Section 315(2) (c).

The Chamber of Mines of Zimbabwe indicated that there are arguments both for and against the use of investment tax incentives that must be taken seriously.  The Chamber highlighted that there are more fundamental matters that must be investigated and addressed that impact domestic resource mobilisation initiatives. Such matters include the view of doing business in the country and the effectiveness of the tax system.

Parliament acknowledged that the pressure from CSO has improved their oversight role including improving the quality of discussions on tax and other issues. Of note is that the MoFED is considering evaluating and amending current tax incentives as indicated in the Para 225 of the NDS. “We further continue to appreciate the role of CSOs in driving efficiency and effectiveness in government operations through advancement of new initiatives, challenging ongoing practices and creating continuous debate and dialogue towards national development.” Hon Mkaratigwa.

The participants indicated that parliament can do better in-terms of timeliness and frequency of discussions on tax incentives. It was also highlighted that MPs are from different backgrounds and when they are appointed no particular attention is paid on their qualifications and sometimes lack of knowledge affects the quality of discussions. The whipping system was also identified as one of the reasons why some MPs do not effectively and efficiently demand transparency and accountability from the executive. 

Based on the workshop the following actions were recommended

●       Urgently conduct studies on the impact of tax incentives starting with the mining sector

●       Public disclosure of disaggregated information or Expenditure reports for citizens, CSO and other stakeholders to have a better analysis.   The parliament must demand these reports for effective oversight, track & monitor and for data driven analysis.

Corruption must be nipped in the bud

CSO and other stakeholders should continue with information sharing and capacity building until citizens understand the pro and cons of the incentives and other development aspects in order to meaningful influence policies.


[1] The period 2015 to October 2018, the value of goods imported duty free through availed facilities amounted to about US$1.14 billion. Of these Specified Mining Development Operations accounted for US$181 million (16%). Government forgone revenue of about US$285.5 million during the same period translating to US$45.2 million for mining operations. According to the 2022 national budget for the period between 2016 and 2021, the Government lost ZWL$ 6551 million worth of revenue out of ZWL$ 33 112 million which was the value for the imports subjected to tax rebates in the mining sector.

[2] http://www.veritaszim.net/sites/veritas_d/files/Zimbabwe 2019 National Budget Statement 22 Nov 2019.pdf

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