News that Zimplats, the country’s biggest mining company, refurbished Mhondoro hospital as part of its corporate social responsibility is good news. But what it spent on that project is a fraction of what the community deserves, and this calls for better use of revenues from mine taxes, writes Mukasiri Sibanda.
In April, President Emmerson Mnangagwa made some interesting remarks during the commissioning of a refurbished district hospital in Mhondoro. The hospital was refurbished by Zimplats as part of its Corporate Social Investments.
In a jovial mood, the President jokingly asked community members if they had ever seen US$1 million in their lives. All this was to illustrate the enormity of the US$2.5 million spent by Zimplats to upgrade the Mhondoro district hospital. He even took his time to hilariously educate the community members on how to write down US$2.5 million.
But, wait a moment! This company achieved a record-breaking US$1.4 billion in revenue, paid taxes and royalties amounting to US$404.6 million, and declared a US$130 million dividend during its financial year to 30 June 2021. The US$2.5 million used by Zimplats to refurbish Mhondoro Hospital is a fraction of the taxes that the company claims to have paid to the government, amounting to a paltry 0.61%.
Zimplats mines Platinum Group of Metals (PGMs), a family of six metals – platinum, palladium, rhodium, iridium, ruthenium, and osmium. Gold, silver, nickel, copper, and cobalt are some of the important by-products recovered from the extraction of PGMs.
Corporate Social Responsibility (CSR) activities are voluntary in Zimbabwe although there is an attempt in the latest draft Mines and Minerals Amendment Bill (MMAB) to make CSR compulsory. To make CSR more relatable, we need to understand that a couple can get a marriage certificate via the courts. For social acceptability by the in-laws, this is not enough.
The traditional processes must be observed and lobola is the most important part. Similarly, Zimplats embraces CSR as part of acquiring a social license to operate from communities within and surrounding mining activities on top of the mining rights acquired from the government.
CSR good, taxes better
Overall, Zimplats spent US$3 million and US$2.6 million in its financial years of 2021 and 2020 respectively on social development projects targeting education, health, local enterprise development, income generation, and sports development. The value of CSR should not be undermined, but in development finance, the main artery of government revenue is tax.
Generally, tax dodging by corporates is a major challenge that makes mineral wealth a nonperforming asset pertaining to a more robust mobilisation of development finance. Multi-National Enterprises (MNEs) take advantage of the outdated global financial and taxation framework to unfairly shift profits from countries they have substantial economic activities to tax havens where profits are barely taxed under the veneer of financial secrecy.
To compound matters, overly generous tax incentives are given by governments to unnecessarily lure investors. In the words of the president of the African Development Bank, Akinwumi Adesina, too much fiscal sugar causes fiscal diabetes.
In its 2021 annual report, Zimplats expresses its commitment to pay taxes in the jurisdictions it operates. Without a doubt, Zimplats must add the word equitable to its obligation to contribute to government revenue.
One wonders how much more tax revenue could have accrued to the government had it been that the company did not elect to move from a special mining lease holder to an ordinary leaseholder in May 2018.
Special mining leaseholders attract additional profit tax, a windfall tax meant to commensurately boost government revenue when mining companies enjoy bumper revenue as the case with Zimplats’ record-breaking revenue of US$1.4 billion in 2021. However, holders of special mining leases pay a 15% corporate income tax rate while ordinary leaseholders pay 24%.
That said, the fact that the company discloses its contribution to government revenue is commendable, considering the opaqueness that clouds mineral resource governance in Zimbabwe. The revenue performance reports that are regularly published by the Zimbabwe Revenue Authority (ZIMRA), the country’s tax administrator, barely discloses the performance of mining apart from royalties.
A healthy tax
Since Zimplats discloses its contribution to the national purse, it is vital to make sense of the likely impact this might have on public investments, using the health sector as an example.
At this point, it is worth noting that the government of Zimbabwe contracted a loan of US$193 million from foreign South African banks to finance the construction, by a UK contractor, of five 80-bed district hospitals and thirty 20-bed clinics. So far, two clinics have been delivered at Stoneridge in Harare and Cowdry Park in Bulawayo. As part of the deal, the government of Zimbabwe contributed US$25 million in cash.
The debt that the government of Zimbabwe contracted to build modern hospitals and clinics is slightly less than half of Zimplats’ tax contribution to government revenue. If the government had ringfenced half of the taxes paid by Zimplats, there could have been no need to contract debt that is exacerbating the debt distress choking the country’s development breadth. Debt, it must be noted, is deferred or future tax obligation.
Speaking of debt, the AfDB president is part of the leaders helping Zimbabwe to ease its debt distress by engaging the landers to find an amicable solution. His words on “too much fiscal sugar causing fiscal diabetes” are echoing in my mind. I hope he is nudging the government to deal with numerous and highly costly tax incentives, a fiscal destabiliser identified in the National Development Strategy.
Outside tax revenue, another development opportunity lost mainly for communities within and surrounding the mining activities is the scrapping of the community share ownership requirements in 2018. Caledonia’s Blanket Mine donated 10% shareholding to Gwanda Community Share Ownership Trust in 2012 and receives regular dividends for community development.
In its 2021 financial year, Zimplats declared a total dividend of US$130 million. If the community had been successful in getting a 10% shareholding in Zimplats, roughly US$13 million in revenue for local development would have been received, a more substantial and reliable revenue stream compared to CSR.
The US$2.5 million corporate social investment by Zimplats to refurbish Mhondoro Hospital deserves to be celebrated as a dessert after the main meal. That is to say, mining taxes should be used to build more hospitals, clinics, and schools, and attract, retain, and motivate doctors, nurses, teachers, and engineers among other critical skills required for a fully functional civil service.
As to your rhetorical question, Mr President, as to whether or not anyone has ever seen a million dollars, here is your answer; Zimbabweans are the owners of the mineral wealth, and they received US$404.6 million in tax revenue from Zimplats in 2021. The government, as the steward of public resources, must be accountable.
Mukasiri is a Tax and Natural Resource Governance Advisor and coordinator of the Stop The Bleeding campaign, a consortium of organisations fighting illicit financial flows from Africa