ZIMRA fishes out diamond dirt

via ZIMRA fishes out diamond dirt | The Financial Gazette – Zimbabwe News by Shame Makoshori 29 May 2014

SHOCKING evidence of government’s inability to effectively police diamond mines has emerged, with confidential reports by the Zimbabwe Revenue Authority (ZIMRA) exposing a sharp decline in taxes and fees due to the fiscus despite robust growth in production levels and output. At least US$1 billion in potential revenue due to the cash-strapped government was being salted away every year because those entrusted to manage the diamond resource have either failed in their stewardship role, or were colluding with shadowy dealers to dodge paying taxes to the State.

In 2012, mismatches between government’s revenue projections from diamond mines and actual remittances hit US$555 million, while last year, Treasury received nothing out of the US$61 million originally earmarked from the controversial Marange diamond fields, reports in our possession indicate. The leakages, which are a result of the emergence of secretive enclaves within government and the mines licensed to operate in Marange, are taking place at a time when industry players have ramped up output after sinking more capital towards a world class hub of gems in Zimbabwe.

Output from diamond mines rose by over 500 percent to over 12 million carats in 2012, from about 1,3 million carats in 2009. This increase is quite pertinent when attempting to juxtapose production trends and revenue inflows into Treasury. Revenues from the sector were expected to track the robustly growing output, but they have headed southwards. ZIMRA statistics indicate that royalties from diamonds retreated by US$12 million to US$22,5 million in 2011, from US$34 million in 2010.

There was a sudden upsurge in 2012 after government reviewed royalty rates upwards cutting across all minerals in 2012. Government failed to collect a single penny in corporate tax from diamond mines in 2009. This means the entire diamonds industry with four mines at the time, could have declared losses when globally, similar operations were profitable when globally, similar operations were profitable.

About US$37 million in corporate tax was collected by Treasury in 2010, but the figure plunged 10 fold to US$3,8 million last year, chipping off US$33,2 million in 12 months. Withholding tax remittances from diamond mines plummeted to US$3,8 million in 2012, from US$5,8 million in 2011, the ZIMRA reports indicated. Resource watchdogs warned against the dangers of over exploitation of Zimbabwean gems by a clique of a few politically connected individuals and the multinationals benefitting from the mines, when the rest of the country is slowly drifting into further hardships.

“There has been a steady decrease in terms of non tax revenue contribution by mining companies from 2010 to 2013,” the Zimbabwe Environmental Law Association (ZELA) said in its upcoming investigation into the goings on in Marange. The report, which is entitled; “Tracking the Trends — An assessment of diamond mining sector tax contributions to Treasury with particular reference to Marange diamond fields,” warns of extensive pillage of diamonds through the manipulation of taxes and related fees.

“In 2010, the mining companies contributed US$174 million (dividends); in 2011, the figure dropped to US$80, 6 million; in 2012, the figure dropped further to US$45 million while in 2013, the figure was nil or US$0 million. As of November 2013, the contribution by diamond mining companies with respect to dividends stood at (nothing).”

“This is notwithstanding a five-fold increase in production from 2009 to 2013. In 2009, diamond production stood at less than two million carats. In 2012, diamond production had increased to 10 million carats. The increase in diamond mining production and the number of companies operating in Marange was, regrettably, not matched by a corresponding increase in diamond non tax revenue contributions to Treasury,” the investigation highlighted.

More startling were revelations that government, which controls 50 percent shareholding in each of the six mines operating in Marange, and enjoys 100 percent control of one of them, failed to collect even a penny in royalties from the sector in 2009. Zimbabwe received nothing from diamond firms operating in Marange through withholding tax in 2009 and 2010, the data revealed. The details added a fresh twist to alleged murky transactions and lack of transparency that have emerged as the hallmark of Zimbabwe’s diamond industry since serious legal exploitation kicked off in 2009.

This could be the reason why government has put forward a plan to trim the number of companies exploiting gems in Marange from seven to two by year end. The plan has been communicated to the sector by Mines and Mining Development Minister, Walter Chidhakwa. Government has started evaluating equipment and staff at the fields in the east of the country. At the Annual General Meeting (AGM) of the Chamber of Mines of Zimbabwe in Victoria Falls last week, government tried to blame the mines for its failure to effectively administer taxes and fees.

“It is also important to note that there has been general confusion with respect to diamond mining non tax contributions to Treasury,” ZELA’s report said.

“The report by the Mines and Energy Parliamentary Portfolio Committee chair, the late Honourable Chindori Chininga, noted that Mbada Diamonds chair Robert Mhlanga reported to Parliament that the company had paid out US$293 million to the government since it started mining in 2009, including US$117 million in 2011-2012. The report points out a discrepancy in the information as the then minister of finance, Honourable Tendai Biti had said in his 2013 budget statement that government had only received US$41 million in diamond revenues in 2012. Even if one argues that the reported US$117 million by Mbada is inclusive of tax and non tax revenue, it does not explain the discrepancy between the US$41 million received by Treasury in 2012 and the US$117 million one company is reported as having paid out to government in the same year,” the ZELA investigation questioned.
Government chose the tranquil environs of the magnificent Elephant Hills Resort at the AGM last week to buttress the shocking disclosures of serious flaws in the administration of diamond taxes and fees.

The secretive nature of Zimbabwe’s diamond mining subsector has not only been a difficult puzzle for the entire nation. It has enraged the world. Experts have queried why a nation that controls 30 percent of global diamond output has slept behind the wheel while millions of its citizens are living in abject poverty. Zimbabwe’s once vibrant economy is in complete turmoil. Over a cup of tea at the AGM, Innocent Madziva, chief economist for revenue and tax policy in the Ministry of Finance and Economic Development, said the State was clueless.

“Production figures and revenues remitted to Treasury (are) not really adding up,” he said. Madziva said out of US$60 million expected from gold royalties last year, only US$23 million was collected.

“Mineral exports receipts and mining tax revenue do not add up. So where is the US$18 million to US$30 million (difference)?” Under normal circumstances, this would be the man well-placed to provide detailed answers to the myriad of questions that he threw to captains of the mining industry. Government’s slow reaction to what has effectively become a clear case of plunder in the gem fields has provided the clearest explanation as to why in far flung Chingwizi Transit Camp near Chiredzi for instance, Mirirai Magomo gave a heart rending story to a local weekly last week about how women living under squalid conditions there had resorted to using leaves as sanitary pads in a country with a fully functioning government.

Quantifying the extent of the plunder could be difficult. The elite, long suspected to be signing bad deals that have cost the country millions, are reluctant to undertake an exercise that may backfire. What is certain is that Zimbabwe has joined many African countries where diamonds have been turned into a resource curse. In the Democratic Republic of Congo, Reuters reports that at least US$4 billion was creamed off the strife-torn African country by multinationals last year through tax evasions and transfer pricing.
Additional fees and taxes that diamond firms pay to government include a resource depletion fee of 2,5 percent levied on gross sales. The Minerals Marketing Corporation of Zimbabwe (MMCZ) also levies a commission of 0, 875 percent on diamond sales.