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Govt dubious tax exemptions wreak havoc

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THE Zimbabwean government should stop giving out “harmful” tax incentives to multinational companies as that has resulted in high levels of inequality in the country, the Zimbabwe Coalition on Debt and Development (Zimcodd) says.

DUMISANI NYONI/MOSES NGWERE
In a bid to attract investment, the government has been offering tax incentives to some foreign companies, a move described by the economic and social justice watchdog as harmful and unfair.

For instance, last year the government exempted Chinese telecommunications giant Huawei Technologies from paying income tax backdating 11 years to December 2009.

In recent days, Great Dyke Investments (GDI), which is developing a platinum mining project in Darwendale, Mashonaland West province, was granted a five-year tax exemption by the government.

This was done by Finance and Economic Development minister Mthuli Ncube through an Extraordinary Government Gazette dated 27 January 2021.

The government has also said it will offer tax incentives to companies operating in the special economic zones (SEZs) in certain industries such as manufacturing as a way of attracting foreign direct investment.

Tax incentives, according to experts, refer to a deduction, exclusion, or exemption from a tax liability, offered as an enticement to engage in a specified activity such as investment in equipment goods for a certain period.

But Zimcodd, in its latest report, said the government should stop giving out tax incentives to multinational companies as this was not in the spirit of tax justice, constitutionalism and progressive taxation in the country.

It said due to such practices, global inequality has increased by 11% in the recent past. The United Nations Development Programme indicates that the richest 10% have up to 40% of global income whereas the poorest 10% earn only between 2% and 7%.

“For there to be equality, we argue that there is a need for just and equitable distribution of the tax burden through the introduction of a wealth tax to ensure that the richest pay a fairer share of the resources required to ensure sustainable and inclusive growth,” the civil society group said.

“There is an urgent need for the government of Zimbabwe and other African governments to stop giving out harmful tax incentives to multinational companies. This call comes at the backdrop of recent media reports of tax exemption for Great Dyke Investment,” it said.

Zimcodd said it is a huge contradiction that corporates get tax exemptions whilst the general citizenry is burdened by many taxes and this has resulted in high levels of inequality in the country.

“Government should consider a basic income grant to cushion the poor against the vagaries of poverty, lack and hunger that has been worsened by the Covid-19 national lockdown,” the organisation said.

Zimcodd said the government, through the taxes it has collected since introducing the 2% tax on electronic transactions in 2018 and a new set of presumptive taxes in 2021, should aim to capacitate small businesses and informal sector traders who have been hard hit by Covid-19 restrictions.

The move to offer tax incentives to foreign companies was described by the then Zimbabwe Revenue Authority commissioner-general Gershem Pasi in 2015 as tantamount to surrendering the country’s taxing rights and would negatively impact on socio-economic development.

Pasi argued that tax incentives mostly resulted in benefits accruing to the country of origin of the concerned companies and not the host country.

Tax, in most countries, is the main source of government income.

According to the Heritage Foundation Report (2012), tax in Zimbabwe contributes 49.3% of gross domestic product (GDP), in South Africa it contributes 26.9% whilst in the US it contributes 26.9% of GDP.

This shows that in Zimbabwe tax contributes a very large chunk of income towards the fiscal budget.

… MPs question opaque Great Dyke tax exemption
THE Parliamentary Legal Committee (PLC) will next week meet to examine the constitutionality of the five-year tax exemption granted to the controversial Great Dyke Investments (GDI), which is developing a platinum mining project in Darwendale, Mashonaland West province.

The move by Parliament, exercised through its oversight function, comes amid serious concerns from legislators regarding the lack of transparency in the arrangement, announced last Friday by Finance minister Mthuli Ncube via a Statutory Instrument (SI) published in the Government Gazette.

Speaker of the National Assembly Jacob Mudenda, who chairs the PLC, confirmed the development in an interview this week.

“The committee will meet next week to review the SI and see whether or not it does not violate the Constitution. We will also be examining all the other Statutory Instruments given out in 2021,” Mudenda said.

It also emerged that Ncube made the decision without consulting Parliament, which has left the Parliamentary Portfolio Committee on Mines and Mining Development seeking answers to questions of accountability and transparency.

“We will definitely summon the minister to explain this decision when sessions resume,” the committee’s Chairperson Edmond Mkaratigwa said.

“As a committee, we are emphasising that transparency and accountability should be considered in making agreements and that is through involving parliamentary scrutiny. The agreements should be known and optimum decisions be made thereafter. Our committee was not consulted but I am not sure if that of the Budget and Finance was consulted since there are financial matters also involved. Since there is a Statutory Instrument already in place, we will seek to know the extent of the exemptions retrospectively for transparency’s sake, but it may be through a joint committee sitting with that of Finance upon liaison.”

“Whereas Parliament, the executive and the judiciary are different, they complement each other for the public good in terms of pooling of decisional resources and providing a second eye in the manner of ensuring transparency and accountability. Where Parliament is involved as the other agency of the masses, it becomes easy to oversee, monitor and evaluate as well as to reduce extreme speculation by the public. However, administratively the decision has an implication on the public resources in the manner of the national budget although the business is private. That is the extent of the dilemma.”
The committee, he said, was concerned with the disregard for basic administrative issues from the executive and wants Ncube to fully account for the paradox.

“At the moment it is key that we hear from the other side in line with the principles of administrative justice. We need to know the full reasons that were considered at the table leading to that decision and also, the associated losses and benefits, then objectively and independently weigh. Unfortunately this is a decision already made against another principle of public finances which says money received today is better than money received tomorrow and that is if the decision’s optimum benefits do not outweigh the losses. Transparency answers these questions easily,” Mkaratigwa said.

“Parliament has to take a harder stance that ensures observance, operationalisation and enforcement of existing constitutional provisions to ensure the government and citizens are moving at par. This space has to be reclaimed collectively by Parliament as an institution so that it reasserts its full authority regarding government business.”

He added that the committee would also demand copies of agreements entered into between GDI and the government regarding the exemptions.

“We have received some agreements before but not around exemptions and we have not received some also. Generally these have been post- than pre-agreements, which sometimes make our work less complementary in that regard. There have not been many of these tax exemption facilities, hence we have not received any during my tenure and I believe even during my two more recent predecessors’ tenures. So this is new during my tenure but not in the life of the Zimbabwean Parliament and we are seeking procedural advice in that regard so that we move forward,” he said.

Budget and Finance committee chairperson Felix Mhona also said his committee was not consulted on the GDzi exemption, but indicated they would await the PLC’s verdict.

“Technically, the ministry is not obliged to consult although it is good practice. However, since it was done though an SI, the SI will be reviewed by the Parliamentary Legal Committee to check on its compliance with the constitution. The PLC will then issue a report in the august House,” Mhona said.

GDI is a joint venture between Russia’s Vi Holdings and Zimbabwe’s Landela Mining Venture (Pvt) Limited and is reportedly investing US$3 billion into platinum mining.

Exemptions to run until 2025 include income tax and tax on dividends earned by shareholders.

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