A LEADING resources watchdog has piled pressure on government to disclose the value of potential revenues it forfeits due to special tax incentives offered to attract investment.
The Zimbabwe Environmental Law Association (Zela) said in a note analysing Caledonia Mining Corporation’s listing on the Victoria Falls Stock Exchange (VFEX) that it was concerned about the administration of tax incentives.
Caledonia, which controls Blanket Mine, a world-class gold asset near Gwanda, listed on the VFEX on December 1, joining two other firms that were already trading their stocks on the new bourse.
These are seed technology firm, Seed Co International and crocodile skin processor, Padenga Holdings Limited.
Zela said most of these incentives were offered to firms headquartered in tax havens, which were known for stoking illicit financial flows (IFF).
“Zimbabwe is vulnerable to risks of illicit financial flows associated with investments that are being channelled via tax havens such as New Jersey and Guernsey,”
Zela said on Wednesday.
“Zela calls for the government through the national budget and Zimbabwe Revenue Authority’s reports to disclose the tax revenue forgone because of tax incentives awarded under the special economic zones,” it said.
“To move a step further on transparency, the government must carry out a transparency cost benefit analysis on the tax incentives and eliminate risks of redundancy of tax incentives.”
Zela acknowledged the importance of putting in place policy measures targeted at attracting firms to list on VFEX, which is located in the Victoria Falls Special Economic Zone.
This means that beyond benefiting from minimal currency risks, free mobility of capital and dividends, companies listed on VFEX enjoy 100% rebates on customs duty on imported equipment, exemption from non-residents withholding tax on royalties, dividends and fees on services that are not locally available.
Under the central bank’s incremental export incentive scheme announced in June, gold companies licensed under the SEZs or listed on VFEX also enjoy 100% foreign currency retention.
However, Zela said government should not be blind to the fact that tax incentives could facilitate IFFs and cost efforts to raise maximum revenue in the mining sector if firms in the industry are not monitored.
The organisation also called for non-listed mining companies to voluntarily adopt international best standards on mineral revenue transparency and responsible sourcing.
Zela said the development came at a time when the Zimbabwe Consolidated Diamond Company (ZCDC) is considering adopting the initiative for responsible mining assurance (IRMA) after several awareness meetings it undertook on the benefits of adopting IRMA standards.
IRMA is a voluntary system established to independently verify compliance with environmental, human rights and social standards for mining operations.
If adopted, the IRMA presents an opportunity for ZCDC to improve on responsible investments and increase its chances of attracting foreign direct investment.