Finance Minister Tendai Biti, who says the government has no money for the elections due at the end of this month, is partly to blame for the lack of revenue from the country’s diamond operations.
Biti announced in his budget for 2013 that he expected to receive about $400 million from diamond proceeds to fund critical national programmes such as the referendum, the elections and the United Nations World Tourism Organisation assembly to be held jointly with Zambia.
The referendum had to be financed with money sourced from the country’s major pension funds, Old Mutual and the National Social Security Authority.
According to the report of the Parliamentary Portfolio Committee on Mines and Energy, the government had not realised meaningful contributions from the diamonds sector and there were serious discrepancies between what the government received and what the diamond mining companies said they had remitted to treasury.
Mbada Diamonds, for example, said it had remitted US$293 million to treasury but the government said it only received US$41 million.
Zimbabwe is reported to have produced 8.7 million carats in 2011 earning US$233.7 million and 12 million carats in 2012 earning US$563.6 million. It is expected to produce16.9 million carats this year.
A breakdown provided by Mbada showed that it had paid:
- Royalties $76.2 million
- Resource Depletion Fee $33.9 million
- Marketing Fees $6.0 million
- Dividends $117.2 million
- Corporate Tax $43.5 million
- Withholding Tax $17.8 million
The committee said the mining sector generally had a poor taxation system and this was probably one of the reasons why there were discrepancies between what the Ministry of Finance claimed to have received and what the mining companies had remitted.
“In the past few years, the Ministry of Finance has introduced piecemeal measures to improve on revenue proceeds from the mining sector. “Taxation in the diamond sector is in the form of corporate tax, PAYE, VAT, royalties and other levies. The committee observed the Ministry of Finance usually targets an increase of royalties on diamonds without necessarily looking at the other forms of taxes.”
The committee said to make matters worse, the ministry approved a Statutory Instrument which introduced astronomical charges which choke the growth of the diamond sector and other mining sectors.
The Statutory Instrument was declared invalid by the Parliamentary Legal Committee and has to be constitutionally repealed but nothing had been done.
The committee said proceeds to the treasury will continue to be low and irregular if the Ministry of Finance does not introduce a comprehensive taxation law.
The committee also said most of the discrepancies that occur in revenue collection find their origin in how the mining contracts were negotiated.
It was therefore essential to have these contracts scrutinised by the public through their parliamentarians, communities and civil society before they are implemented.
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