Abstract:
Tax incentives have historically been used as an investment promotion tool in many sectors including the mining industry. Recently however, the global use of tax incentives has been associated with tax base erosion and viewed as highly susceptible to corruption. Mineral resources are further finite and they are further governed by the government of a country on behalf of all citizens. These factors including the high revenue potential of mineral resources bring into question the appropriateness of the use of tax incentives in the sector. The government of Zimbabwe has recently been questioned for its extension of seemingly generous tax incentives to mining companies such as Great Dykes Investments, within the context of a global health pandemic which resulted in the constriction of many economies. Acknowledging that the government of Zimbabwe views the extension of tax incentives to foreign investors as an indispensable investment promotion tool, this study sought to investigate the extent to which the governance of tax incentives in Zimbabwe lives up to international best practice aimed at limiting tax base erosion. Through a desktop analysis of the legal instruments through which tax incentives are granted to mining companies in Zimbabwe, this study established the fundamental characteristics of the governance regime applied in Zimbabwe towards the extension of tax incentives. The study went on to set each characteristic against international best practice that has been suggested by leading global financial and mining institutions. This study found that the governance regime applied in Zimbabwe fosters transparency and accountability and there by limits opportunities for tax base erosion by ensuring that the Minister of Finance holds the primary authority to grant incentives and that most incentives are granted through primary law. It was however found that the governance regime falls short of international best practice by not ensuring that all tax incentives are granted through a single primary law with clear eligibility criteria. Tax incentives granted to mining companies in Zimbabwe are further not monitored and the policy rational guiding their extension are not made publicly available. Lastly the governance of mining tax incentives in Zimbabwe fails to adhere to international best practice through the publishing of contracts.
