As the nation embarks on the formulation of the 2025 national budget, it is crucial to acknowledge concerns raised by various stakeholders, including government officials, parliamentarians, academia, and community representatives.
These stakeholders have expressed reservations that the mining sector has not been contributing a fair share of taxes to support vital human development areas such as health and education.
The Zimbabwe Environmental Law Association (Zela) notes that these concerns have been raised despite the fact that the first National Development Strategy (NDS1) (2021-2025), which concludes in 2025, included a commitment from the government to implement policy measures aimed at enhancing the mining sector’s contribution to revenue mobilisation and sustainable development.
Among these measures was the establishment of an investment committee, involving the Office of the President and Cabinet (OPC), the Ministry of Mines, and the Treasury, chaired by the Zimbabwe Investment Development Agency (Zida).
This committee was tasked with ensuring transparency in investor agreements, overseeing fiscal concessions, and securing a fair share – for the Government – from mineral exploitation.
Despite these concerns, Zela commends government’s recent commitment to conduct studies on the impacts of tax incentives in the mining sector is commendable as it aligns with the National Development Strategy 1 (2021-2025) policy focus on transparency regarding tax incentives.
This policy states that “Tax incentives represent forgone fiscal revenue. While there is a connection between fiscal incentives and economic growth, the government will consistently conduct cost-benefit analyses of existing fiscal incentives to guide reviews and streamline those deemed redundant.”
Such progressive commitments align with Zela’s dedication to fostering a transparent and accountable framework that supports both economic growth and the well-being of Zimbabweans.
It is, therefore, disheartening to note that are some policy and implementation gaps which are prejudicing the country from realising maximum benefits from national mineral resources.
One such gap is the absence of a sliding scale royalty structure. Government previously missed an opportunity to generate additional revenue through this mechanism when platinum group metals (PGMs) experienced a price surge on the international market.
With hindsight as an ally, Zela notes that now is the ideal time for the fiscal policy framework to implement a sliding scale royalty system for these important minerals as prices are depressed.
Zela makes this recommendation based on the 2024 State of the Mining Sector report from the Chamber of Mines which projects a price rebound of key minerals like lithium, gold, and platinum.
Thus, this change would not only enhance the government’s ability to capture a fair share of revenue from the mining sector, but also ensure the industry’s competitiveness.
It is important to note that unlike corporate taxes which are often susceptible to illicit financial flows (IFFs), royalties provide a more stable income stream for the government.
Thus, it is crucial for the government to carefully consider how to structure these royalties to achieve a fair tax contribution from the mining sector.
For now, pursuing a sliding scale structure for royalties appears to be the best course of action as for example, the current sliding scale royalty structure, which is only used in the gold sector, allows the government to collect royalties at the rate of 5% for large scale miners for the gold price level of US$1 200 per ounce.
However, given that gold prices have doubled and there is expectation that prices are going to continue to be bullish, the 5% staggered royalty rate ceases to make sense. For government to collect a fair share of revenue from the gold sector.
Additionally, Zela notes another gap that no updates have been given on the progress made by the Zimbabwe Investment and Development Agency (Zida) and the Environmental Management Agency (EMA) regarding the environmental due diligence mechanism and the processes established to monitor and hold investors accountable for their environmental compliance commitments.
Recent quarterly and annual reports from Zida indicate an increase in investment flows into the mining sector facilitated by the agency.
Notably, the Zida Act (Chapter 14:37) and the Zimbabwe Investment and Development Agency (General Investments) Regulations of 2023 have established an environmental due diligence system that investors must navigate before their applications for general investment licenses are approved.
As part of this due diligence framework, investors are required to demonstrate to ZIDA that they have disclosed potential impacts of their proposed investments and detailed measures to address any adverse environmental consequences in their general licence applications.
Furthermore, Zela recognises the growth of the mining sector, as indicated by the Chamber of Mines’ performance projections for 2025 which estimate that over US$5 billion will be invested in the mining industry that year.
This development necessitates increased resources to bolster the government’s ability to enhance mineral resource governance, retain critical skills, monitor compliance, and enforce laws, including those related to the environment.
However, without sufficient resources to strengthen state capacities for regulating the rising extraction of minerals, the government risks setting itself up for failure.
Additionally, an analysis of previous national budget allocations has shown that the Mines and Mining Development ministry has been receiving less than 20% of their bids.
In the 2024 national budget, the Mines ministry received an allocation of ZWL$132 billion against its total bid of ZWL$696 billion.
This is despite the fact that strengthening state capacities to promote good governance in the mining sector has become very important because of the responsible mining audit that was recently launched by the government to assess compliance with legislation, tax payments, labour, environmental standards and corporate social responsibility (CSR) commitments.
Therefore, it is imperative to avail more resources to the Ministry of Mines and Mining Development and EMA which would be better equipped to build the capacity of mining companies to comply with the country’s mining and environmental laws
In the same vein, Zela calls for the 2025 n ational budget to clarify how Zimra has collaborated with EMA to assess the social, economic, and environmental impacts of tax incentives granted to the mining sector.
This request arises from concerns that certain mining operations, which negatively affect the environment, may benefit from numerous tax incentives without accountability.
Thus, the 2025 fiscal policy statement must strengthen the capabilities of ZIMRA and EMA in monitoring compliance among companies, ensuring that mining firms that violate environmental laws do not receive tax incentives.
Environmental compliance should be a prerequisite for the renewal of mining titles, as outlined in the 2021 Cabinet Policy Directive.
Zela also acknowledges the crucial role of the Artisanal and Small-Scale Gold Mining (ASGM) sector in environmental protection.
Recent government updates on responsible mining audits have highlighted that the ASGM sector significantly contributes to environmental degradation.
This situation necessitates a robust policy framework that enables the ASGM to produce and deliver gold to Fidelity Printers and Refiners while ensuring compliance with environmental, safety, and health standards.
Regarding revenue-sharing arrangements between the government and local communities, Zela notes that the government has abolished the Community Share Ownership Trust (CSOT) framework by repealing the Indigenisation and Economic Empowerment Act through the Finance Act of 218.
Following this repeal, the government pledged to introduce a comprehensive and equitable benefit-sharing mechanism via the enactment of the Economic Empowerment Act.
However, it has now been over five years, and the Economic Empowerment Act is yet to be realised.
Zela urges the 2025 national budget to clarify the progress made in formulating the Economic Empowerment Bill. As a best practice, the government should develop enabling legislation that facilitates royalty revenue sharing among the central government, local authorities, and communities.
While acknowledging the government’s decision to allocate 1% of gross revenue from lithium, black granite, and other dimensional stones for community development, Zela notes that the mid term budget statement presented in July 2024 did not address the progress made in utilizing these funds.
Therefore, Zela urges the 2025 national budget to provide clarity on how the 1% levy has been spent.
Additionally, the 2025 budget should explore the possibility of extending this levy to other minerals, especially given that CSOTs have been shelved and the Economic Empowerment Act is not yet in place.