New Legislation To Curb Illicit Financial Flows
The government is crafting legislation to compel mining firms to release production data to the fiscus to help curb illicit financial flows (IFFs) and transfer pricing which is costing African countries at least $50 billion annually, finance minister Patrick Chinamasa said on Friday.
IFFs have become a highly emotive issue on the continent since the African Union’s High Level Panel on Illicit Financial Flows chaired by former South African president, Thabo Mbeki, last year reported that Africa had lost $3 trillion in the past 50 years, with multinational corporations the main culprits.
On Thursday, Mbeki told the Pan African Parliament sitting in Midrand, South Africa, that Africa was losing $50 billion a year in IFFs due to corruption, weak legislation and monitoring institutions and lack of transparency.
IFFs are money that is illegally earned, transferred or utilised and in Africa these amounted to about $529 billion in the decade to 2012, compared to $348,2 billion in aid and $284 in foreign direct investment over the same period.
In the decade 2003-2012, Zimbabwe lost $2,673 billion in IFFs, according to the watchdog Global Financial Integrity, all due to transfer pricing in the fish industry. The figure is seen much higher as figures from other sectors are not available.
This week, a conference co-hosted by the GFI, International Bar Association and Friedrich Ebert Stiftung in Johannesburg noted that lack of transparency by multinationals and corruption, particularly in the resources sector, left many governments and societies blind to the activities of multinationals.
Addressing the 76th Chamber of Mines Annual General Meeting in Victoria Falls on Friday, Chinamasa said the government was not aware of how much was being made in the mining sector because of lack of transparency in the sector.
The proposed legislation would facilitate speedy creation of a new mining fiscal regime, which is meant to enhance transparency, stop transfer pricing or illicit financial flows.
“It is the challenges brought about by the current regime that have given rise to the need for a new model because so there is an efficient, transparent, administratively simple and productive tax system,” said Chinamasa.
He said government has to strike a balance between revenue generation and attracting investment into the mining sector and had engaged the Norwegian Embassy and the World Bank to develop the framework.
Zimbabwe has a well diversified mining industry — it holds an estimated 25 percent of diamond deposits in the world and has the second biggest platinum reserves globally after South Africa — but Chinamasa said only the gold sector was providing comprehensive data.
The effectiveness of the proposed framework would be dependent on the mining sector making the data available, he added.
“Government is putting in place legislation that will assist in collecting the required data from the industry. We are going to enforce this. I can’t give details of the proposed fiscal regime because it is still work in progress but it is expected to benefit both the country and investors,” he said.
The legislation would seek to address inefficiencies, distortions and multiplicity of stakeholders that include government agencies that are levying the mining sector.
Agency (EMA), Rural District Councils, Zimbabwe Revenue Authority (Zimra), Zimbabwe Mineral Development Council, and Mineral Market Corporation of Zimbabwe which made Zimbabwe an expensive investment destination.
Mining companies have to pay royalties, corporate income tax, Value Added Tax, Customs Duty, Capital Gains, withholding tax on technical fees, remittances, royalties, dividends, interest earned on deposits, fees and charges.
These uncoordinated collections negatively affect the mining sector’s viability, transparency and accountability and such a scenario confuses the investor while also making investment approval process cumbersome, said Chinamasa