The Sunday Mail
Over the years, Zimbabwe has lost huge sums of money through mineral revenue leakages. The Ministry of Mines and Mining Development is now collaborating with Norway on a new mining fiscal regime aimed at plugging such leakages. Our Chief Reporter Kuda Bwititi (KB) spoke to Norway’s Ambassador to Zimbabwe, Mr Bård Hopland (BH), on the initiative.
Excerpts of the interview:
KB: What exactly is Norway’s role in this programme?
BH: The Norwegian embassy has provided economic and legislative expertise with a view to revise the current mining fiscal regime. This assistance has come from specialised consultants with significant global experience in such matters, with particularly strong links to Africa.
KB: What is the budget?
BH: This has not been a costly initiative. All in all, we have so far spent USD156 000. However, money spent wisely can make a big impact. In this case, we hope that we can contribute to a considerable increase in tax revenues that will ultimately benefit the people of Zimbabwe.
KB: Tell us the system’s success stories.
BH: Let me mention one example from Zambia, where Norway has supported the Zambian Government in establishing a more effective tax regime for the mining sector. Better capacity and competence in the Zambia Revenue Authority (ZRA) has paid off. In 2014, Norway spent USD1,84 million on this programme and ZRA collected an additional amount of K134 million (USD20 million) over and above their regular tax collections through special tax audits undertaken with this support.
Furthermore, 73 percent of mineral sales from mining companies in Zambia were audited in 2014, with the entire value chain for copper production monitored, from processing to exports.
Norway has also similar programmes in Tanzania and Mozambique, both with the view to strengthen capacity for mobilising resources for development.
In Tanzania, Norway spent USD1 million on derivatives experts and the Tanzania Revenue Authority (TRA) were able to increase the tax base with USD200 million, which else would have been deducted against the Tanzania revenue base.
USD75 million of these were permanent deductions (derivative losses), while USD125 million could, but would not necessarily, have been reversed in future tax returns. Small efforts in taxation can, thus, provide for a very large multiple in returns.
These are just examples of what a focus on taxes could bring in revenues. We are aware that there are few examples of African countries that have major success with their tax systems, but so is the case in other parts of the world.
However, there are examples of countries that have succeeded more than others, and Norway is one of these, which is why we share our experiences with other countries.
To our understanding, there is no country that has fully taken in the advice of tax experts in reorganising their fiscal systems, and this is also a reason why there are lacking examples of successful fiscal systems, not only in Africa, but all over the world. Taxation is a combination of fiscal priorities and fiscal politics.
Our view is that if more focus can be on fiscal priorities and less on fiscal policies, then the tax systems improve, although it is unlikely they will become perfect.
KB: What are the system’s key features?
BH: What I can say is that the salient features of our advice have been to establish a tax regime which:
Secures maximum benefits from natural resources for the people of Zimbabwe, while ensuring that incentives for investment and production/operation are appropriately considered;
Places transparency as a priority issue to build trust and avoid corruption through administrative simplicity, and efficient and effective tax collection;
Promotes natural comparative advantages such as providing incentives for beneficiation and investment that will ultimately be self-sustaining economic activities; and
Combines international best practices in ensuring compliance in areas such as illicit capital flows, hedging and price manipulation.
KB: Tell us more about the benefits to Zimbabwe?
BH: We live in a very unequal world and there is an urgent need for a broader distribution of wealth and power. One step towards this goal is that countries should be able to secure greater welfare for their people through their comparative advantages. Zimbabwe is incredibly rich in natural resources.
These resources should benefit the Zimbabwean people. Under the current mining sector fiscal regime, the tax contribution of many companies is negligible relative to the size of their operations. Thus, society loses out on vast tax revenues, which could have been used in areas such as infrastructure, education and healthcare.
These “missing” revenues are important because reducing poverty requires economic growth, which stems from investment in both physical and human capital (e.g. education). Such investments lead to higher productivity, greater efficiency and broad gains in employment opportunities.
Services, such as education, healthcare and infrastructure development, are key areas usually administered by the government due to the positive externalities.
Stronger tax revenues can support the Government of Zimbabwe in providing such services.
Given that development aid will never fully meet these needs, domestic revenue generation must be optimised and better tax systems are key in achieving this goal.
Let me also say that I greatly welcome this opportunity to discuss tax as a source of funding pro-growth strategies.
More awareness of taxation issues can foster stronger political engagement by the general public. People who pay taxes will place demands on the authorities in terms of equitable and efficient taxation.
An open dialogue concerning tax issues could, therefore, act as a catalyst.
Ultimately, good tax policy will create economic growth that further strengthens tax revenues, and this is a very positive feedback effect.
Norway has developed a transparent, effective and efficient tax system, including the taxation of natural resources. However, it must be recognised that each country is different and the Norwegian model cannot be directly transferred to other countries. We can only share our experiences.
