Zimbabwe Environmental Law Society (ZELA)‘s champion Member of Parliament (MPs) capacity-building program with the Zimbabwe Parliament caucus on Illicit Financial Flows (IFFs) and taxation is currently underway in Bulawayo.
The Parliament caucus on IFF and taxation together with ZELA have held the workshop to facilitate the interface Civil Society Organizations (CSOs) and the caucus on IFFs and taxation on transparency and accountability issues affecting IFFs, community benefits and good management of mineral revenue.
The workshop will also track progress in the realization of actions made by members on IFFs since February 2022.
According to ZELA, the workshop is also meant to build the skills of the Caucus on the regional and international transparency initiatives that can promote good management of mineral revenue, and to explain how parliamentary processes such as motions and debates can enhance the oversight role of the Zimbabwe Caucus on IFFs and Tax and to strengthen the Caucus to develop its strategic plan, motions or questions as part of their oversight role on curbing IFFs.
“Natural resources are central to Zimbabwe’s economic recovery and sustainable development path. However, despite this picture, a general disconnect between diamond mining and social development persists. The contribution of mining to revenue mobilisation and sustainable development in resource-rich African countries. Africa has been under constant threat from problems related to governance. Notwithstanding other challenges like corruption, the weak government revenue leg room from the erosion caused by Illicit Financial Flows (IFFs) has highly negatively impacted domestic resource mobilisation and subsequently public service provision in the areas of basic public service provision such as health and education.
The global financial and taxation system has undergone various shocks and changes recently. The Covid-9 pandemic contributed to the collapse of economies and ratcheting pressure for financing for essential service delivery. New challenges have continued to emerge and made developing nations’ domestic revenue mobilisation (DRM) capabilities dwindle. As highlighted in the High-Level Panel report on illicit financial flows from Africa, some of the main detrimental factors to DRM include overly generous tax incentives, poor beneficial ownership legislation that impedes efforts to curb Illicit Financial Flows (IFFs) and the inability to tax the digital services sector. Africa which is the huge emitter of IFFs has in the last few years embraced Beneficial Transparency as an important tool to curb anonymity which enables tax evasion, corruption, money laundering, and financing of terrorism.
The manifestations of IFFs are unequal and secretive mining agreements that are lopsided in favour of investors, abusive transfer pricing practices by multi-national corporations that enable corporates to evade taxes in jurisdictions where their main economic activities are located, overly generous tax incentives, smuggling, and corruption. Annually, Zimbabwe loses more than US$1.2 billion due to gold smuggling. Tax incentives from one large platinum miner drained US$100 million from the national purse. This came about after the revenue authority lost a court case on the legality of the platinum royalty stabilisation agreement. Recently, Great Dyke Investments was awarded a five-year tax holiday on corporate income tax, additional profit tax, and withholding tax on dividends regardless of the COVID-19-induced pressure to generate more government revenue to invest in the health sector.
Tax incentives have remained one of the Government’s primary tools to attract foreign direct investments, particularly in the mining sector and the mining sector is a key beneficiary of tax incentives. The mining fiscal code contains many tax incentives – full capital redemption in the first year, perpetual carryover of mining losses, import tax exemptions on capital goods, and the reinstatement of mineral royalties as a deductible expense for income tax purposes. Tax incentives have substantially diminished public revenue when the Government is hard-pressed with increased expenditure in health and to cushion livelihoods. Tax expenditures for 2020 amounted to ZWL$ 111.55 billion, a massive 61% tax discount considering that ZIMRA collected ZWL$181.86 billion in the same year. However, a complete picture of the mining tax incentives is hard to see hence the need to strengthen the governance of tax incentives in Zimbabwe. From its five-year National Development Strategy (NDS) 2021-25, and national budget statements, the government seems to be alive to the threat posed by tax incentives.
“Tax incentives represent forgone fiscal revenue. Notwithstanding the nexus between fiscal incentives and economic growth, the government will continuously Cost-Benefit Analysis of the existing fiscal incentives to guide the review and stream of those found to be reductant’’. (NDS 1)