Taxes and human rights may not seem the most obvious bed fellows. Yet tax avoidance, incentives and other tax abuses, as well as poorly designed tax systems, deprive citizens of basic needs, in particular access to health care, water and sanitation services and education. This is no truer than in resource-rich developing countries where extractive activities not only have not created a steady revenue to spur development, but have also severely impacted the livelihoods of communities.
“Decision makers have to commit to increasing public financing of development and putting in place measures to ensure transparency and accountability in private financing” – PWYP Zimbabwe
Because a large part of the African economy is commodity based, this means that a low provision of basic services combined with inadequate tax collection may also have a negative impact on communities, in particular those impacted by extractive activities. We’ve looked more closely at two resource-intensive countries, Zimbabwe and Zambia, to better understand the (lack of) extractive taxes for rights-based development. In both countries, investor-friendly regulations by the government, often at the request of companies, have soured profits from mining activities at the expense of citizens. What is then the shared responsibility of governments and extractive companies to ensure that taxes are used for sustainable development?
The case of Zambia
Two of Zambia’s major mines are based in the north western part of the country where copper mining is the only industry and hence a major source of revenue for the state. According to the 2010 and 2011 EITI reports, these two mines are the top producers of copper in Zambia. Moreover the 2012 and 2013 EITI reports show that they are amongst the top five revenue contributors to the state coffers. But to allow the development of these mines, local communities have had to surrender their customary land rights as they were converted into state land. Heavily dependent on maize and cassava farming, these communities haven’t been able to farm since 2005, thus losing their source of revenue. In return, community members received very low compensation and, because no consultations took place, their livelihood needs weren’t taken into account. The system also ignored social structures in the community and women, who had been owner of lands, saw their compensations pocketed by their husbands instead, who then often misused the (already low) funds.
Displaced communities also weren’t adequately supported. In their new location, poor transport connections, despite being promised, have cut them off from other communities and makes it very difficult to earn adequately by selling farming goods at local and regional markets. Instead of housing -again promised- they received only roofing sheets, and not even enough to build a full roof for each household! Even the basic human right to access safe water hasn’t been met – the boreholes drilled by the mining company at the school and at the clinic have gone dry due to bad maintenance. The mining company did construct a school and a clinic, but in both cases the government has not yet officially opened them.
The case of Zimbabwe
As for Zimbabwe, there is evidence that mining companies are not contributing enough taxes to the national treasury. This is due not only to a poorly designed fiscal framework but also to possible tax avoidance or, worse, evasion. In 2011, mining exports were in excess of US$2 billion, the mining sector contribution to the fiscus (excluding diamonds) was only a meagre US$150 million. The potential of the massive mining revenue in Zimbabwe to address sustainable development is therefore far from realised.
Tax dodging in Zimbabwe is particularly a problem in diamond-mining. The State has equity participation in the diamond mining sector through the Zimbabwe Mining Development Corporation, making the role of the state even more litigious. In the 2014 Audit Report on the corporation, it was noted that various tax obligations had not been met. When juxtaposing these enormous tax infractions against the lived realities of mining-affected community members, it is difficult to not be discouraged by the inequity.
“When profitable mining corporations dodge paying taxes in developing countries they negate our efforts to escape poverty as they starve us of our public revenue with which to finance social service delivery and development.” PWYP Zimbabwe
The mining in this area has caused displacement of over 1000 families who have not received any compensation whilst the companies have been paying generous compensation packages to their board members and executives. The school facilities are inadequate and lack the infrastructure to actually cater for the relocated children. The displaced communities have been forced to rely on an inadequate water source that is costing them US$6 dollars, a prohibitive fee for most families, and is a major cause of death in the area, in particular through diarrhoea. The human cost related to taxation in Zimbabwe is not only evident in the case of displaced communities. Those that still reside near the mining site have also been negatively impacted. An independent study found that the water quality of their main sources of water are not safe for consumption. Despite the communities bringing this case to the High Court of Zimbabwe, no improvement by the government has been made yet.
One may question why are basic rights and services, ones necessary not just for living but for surviving, not provided by the government with the support of tax income, in particular for communities of areas generating that income?
“A just tax system with a strong legislative and policy framework to combat tax dodging (centred around transparency and accountability), will surely ensure meaningful revenue collection from taxes paid by companies within the resource rich countries. This in itself obliges governments of developing countries to account for the tax revenues in the best interest of its citizens.” PWYP Zambia
Tax should be a bridge between governments and their citizens: it should build accountability between the state and its citizens as well was with corporations. But lack of mining taxes or poorly managed taxes is instead keeping citizens from accessing their basic human rights especially for communities living close to the extraction.
Some of our key recommendations:
Fiscal regimes for mining need to be anchored in a Human Rights based approach, meaning that a complete overhaul of the structural orientation of mining fiscal regime need to actively promote the realisation of human rights and basic service provision
Mining companies must produce annual reports that capture social and environmental impacts.
There needs to be more transparency in relation to tax practices
The governments should respect the owners of the land confiscated for mining purposes. This requires genuine consultations
Communities need to be sensitised and better informed to empower them to claim appropriate compensation
Affected communities need to be involved from the beginning of any project
“With Africa’s population set to double by 2050, rising faster than sustainable development projects, modernizing local economies will prove vital to make the continent more competitive and increase people’s living standards, hence we cannot afford to let another dollar disappear into thin air.” PWYP Zambia
The time to act for tax justice for the benefit of citizens is now.
This article is based on a full report available here combined with statements from the PWYP coalitions in Zambia and Zimbabwe made to demand more transparency and accountability in extractive taxes during the financing for development summit in Addis earlier this year.