Answering the How? Ploughing back 10% of revenues from mining companies: The case of Solwezi Municipal Council

On the 14 December 2015, Solwezi Municipal Council passed a resolution to “enhance service provision to communities affected by mining activities”. This resolution followed a proposal to invest property rates collected by the council from mining companies within mining host communities.

It is against this backdrop that YAD working with Publish What You Pay Zambia (PWYPZ), decided to initiate the development of this briefing paper, which gives a contextual analysis and provides guidelines for the implementation and realization of the resolution passed by Solwezi Municipal Council.

New ‘report card’ will hold mining companies accountable in Zambia

It is notoriously difficult to persuade big companies that social responsibility is important. It took a decade of protests and boycotts to force Nike to stop making shoes with slave laborers. In India, corporate social responsibility (CSR) is the law of the land, and yet more than half of the largest companies refuse to pay the requisite 2 percent of their profits to charity.

In Zambia, there are no world-famous shoe brands to shame or laws to turn to. In fact, the Zambian government doesn’t have a policy or even a statement of principles on CSR at all. Instead, big companies have broad discretion about how and whether to engage in CSR. And few industries have a worse reputation than the mining sector, which accounts for 10 percent of the nation’s GDP and dominates the copper-rich northwest. Communities in the Copperbelt have long felt the environmental and social impacts of the industry, but they’ve never had an effective way to hold it accountable.

Now Publish What You Pay Zambia and Caritas Zambia are working on a tool that could finally give communities a voice. They call it the Corporate Social Responsibility Index, and the idea behind it is simple: Mining companies commit to CSR projects, and the people intended to benefit grade them on their performance.

“The companies obviously don’t want a bad report in the end,” said Mtwalo Msoni, Assistant National Coordinator at Publish What You Pay Zambia. “They want to show off to investors this is what the local communities are saying about us.”

CSR has always been a divisive issue with some claiming that it can address corporate misconduct (human rights abuses, environmental degradation, pollution, etc.). Others point out that companies still find loopholes in the law — and that CSR has become a public relations talking point, not a real priority.

Zambia’s mining industry has faced similar criticism, particularly about how companies report corporate social responsibility payments to the government and to international organisations. While mining companies reported nearly $46 million in cash or in-kind CSR contributions in Zambia’s Extractive Industry Transparency Initiative (EITI) report of 2014, not all of that spending reached the intended beneficiaries.

For instance, Mopani Copper Mines built a training school for its employees and counted it as as a social investment payment against tax obligations. In another case, Lumwana Mining Company reported the operational costs of its soccer team as a social payment — even though the pitch is locked inside the mining facility and off-limits to most members of the local community.

“There’s transparency on what mining companies spend on CSR,” Msoni said. “But this is not accountability.”

The CSR Index will ask communities whether the mining companies’ reporting lines up with the reality on the ground in the form of a 13-page questionnaire. Questions such as “How often are the stakeholders engaged?” and “What provisions have been put in place to ensure a safe, clean environment?” are paired with responses ranked 0 through 5. The higher the total score, the better the companies look.

The biggest challenge will be to make sure the companies care about the rankings enough to work toward a good grade. But Msoni says he’s confident they have the buy-in they need to go ahead with a test run of the index on a small group of eight communities around the mining sites and three mining companies in May. But eventually the CSR Index will go nationwide, with as many as 30 companies standing up to the scrutiny of Zambian citizens.

PWYP Zambia is a member of the Publish What You Pay coalition.

For more information please contact Mtwalo Msoni

Missing tax refunds from Zambian government directly affects mining communities

Africa’s largest copper mine is owed over 75% of its tax refunds from the Zambian government, Publish What You Pay (PWYP) Zambia has discovered.

The Kansanshi mine, owned by Kansanshi Mining PLC and ZCCM, is still waiting to receive millions of US dollars in Value Added Tax (VAT) refunds from the Zambian Revenue Agency.

Despite claims that a payment of around ZMK 857,005,562 (USD $85,700,556) was made to the mining company, Kansanshi Mining argued that no VAT refunds were received in 2014.

This information was revealed by analysing seven Extractive Industries Transparency Initiative (EITI) reports published from 2008-2014, which hold information on over forty companies making payment disclosures each year.

Kansanshi Mining company is Zambia’s largest private sector employer with 5,178 workers on its payroll and 3,360 engaged by different contractors. It has been commended for its collaboration with local training and educational institutions, as well as with international organisations such as CARE international and the Young Women’s Christian Association.

The amounts due to Kansanshi Mining went up from USD $91.6 million at the end of 2013 to USD $245.9 million at the end of 2014. VAT refunds were seen as one of the hottest issues in 2014 for a number of reasons.

“Zambians felt that the mines were trying to avoid taxes. This was further sensationalised by the media, particularly social media and political opposition parties”

“For many Zambian citizens, mines claiming VAT refunds were seen as immoral and illegal as they were not aware of the premise upon which the mines claimed VAT credit,” says Lwizya Chanda, Researcher at Caritas Zambia.

“Of course, other sectors which export goods and services are entitled to claim VAT refunds, but given the perceived mistrust between the public and mines on tax issues, Zambians felt that the mines were trying to avoid taxes. This was further sensationalised by the media, particularly social media and political opposition parties. The government owed the mines backlog-claims in excess of USD $500 million.”

Kansanshi Mining has been quoted to say that it will not be investing USD $1.5 billion into the expansion of its Solwezi facility until the Zambian government provides its tax refunds.

Recently, Kansanshi has been aligning all of its investment efforts into helping the Zambian government achieve the United Nations’ Sustainable Development Goals (SDGs). However, without the significant amount of money from VAT refunds, the company claims that it isn’t able to invest in socially responsible initiatives in Zambia.

“Corporate Social Responsibility (CSR) cannot be sustainable if it isn’t based on the needs of people and if we are leaving anyone behind. Kansanshi must contribute to goals to end poverty in all its forms everywhere and ensure inclusive and quality education,” says Lwizya Chanda.

“CSR shouldn’t be limited to certain groups – everyone should be included and their needs assessed, then Kansanshi can have sustainable projects which will lead to fulfilling the SDGs. Community-driven CSR is what PWYP Zambia and Caritas Zambia envisage so we are developing an index tool to let communities gauge CSR conducted by mines. It will be piloted in Solwezi where Kansanshi is located”

PWYP Zambia’s ‘Truth Extraction’ from the EITI reports have divulged countless revelations about Zambia’s EITI process and a lot of points for improvement. Zambia has been producing EITI reports since 2008 in a consistent and commendable effort to combat corruption.


Call for action:

The Publish What You Pay Zambia coalition asks the Zambian government to stop underestimating the importance of mineral revenue collection and utilisation in the extractive sector. PWYP Zambia are concerned about the country’s failure to collect mineral royalty taxes amounting to ZMW 200,205,125 as revealed by the Auditor General’s report in 2015. PWYP Zambia requests that any missing revenues are looked into and all loopholes for financial leakages are addressed.


PWYP Zambia demands transparency of ultimate owners

PWYP Zambia Press Release – For immediate release
14th January, 2016

We, members of Civil Society Organizations in Zambia working on issues of extractive industries observed that on 8th – 9th December 2015 in Kiev, the Global Transparency Initiative which promotes good governance of natural resources – the Extractive Industries Transparency Initiative (EITI) – agreed to make beneficial ownership transparency an obligation on all 49 member countries. The EITI calls on mining companies to publish what they pay to government and governments to publish what they receive from government. The addition of beneficial ownership as an obligation to EITI disclosure requirement will entail that citizens will be accorded a chance to know the true owners and beneficiaries of the natural resource extraction. This is a very significant step by the Global EITI initiative as previously issues of EITI reporting on beneficial ownership were piloted in 11 EITI countries including Zambia. This means that Zambia has been part of the learning process that has contributed to drawing key national level lessons on how beneficial ownership reporting at the country level could support greater transparency for the Extractives sector. It is the position of civil society that the great strides made in Zambia on EITI implementation be upheld and that Zambia embraces reporting on beneficial ownership in full in its EITI reporting. This means our expectations are that all Zambia EITI reports will ensure that information about extractive companies’ beneficial owners is made wholly and unreservedly available to the general public for scrutiny. In addition, this will entail that the EITI reports for Zambia disclose all beneficial owners of respective extractives companies in their natural persons to ensure that the general public is well informed about all economic players in this economy who directly or indirectly ultimately own or control corporate entities. We believe it is only right and just that the public knows all individuals who enjoy the economic benefits of their companies’ economic activities in Zambia through the holding of shares, voting rights or other means. Beneficial ownership disclosure will definitely support the fight against corruption in Zambia and help to track and stop illicit capital flight from our economy, therefore increasing the much needed revenue in our economy. The potential of the extractives industry to generate more revenue for this economy cannot be downplayed despite the current challenges being faced.

Based on the 2014 report, we observe that revenues from the sector increased by 21%. This means that if standards of transparency are improved even further, more revenue can be generated from the sector and made available for increased social spending to health, education, social protection and agriculture. We Civil Society Organizations in Zambia working on issues of extractive industries, further wish to remind Government that in November 2015, CSOs jointly embarked on the launch of the “Stop the Bleeding Campaign” in Zambia aimed at curbing illicit financial flows from Africa as a whole but also more specifically from Zambia in particular owing to the huge financial leakages that our economy is facing. We advise Government to use the EITI as an available tool to address the problem of illicit financial flows by adopting and fully implementing the new EITI principle on beneficial ownership. We further implore Government to ensure that fighting financial leakages through tax dodging practices by Multi National Cooperation (MNCs) is placed top on government’s policy agenda as more resources are needed to fight poverty and grow this economy.

Lastly, we call upon the Zambian Government to continue supporting the efforts by the Zambia EITI council in developing the Zambia EITI law. We are confident that the law will include a section on beneficial ownership to address the issues raised above.

Issued By: Isabel Mukelabai
Executive Director, Centre for Trade Policy and Development ( CTPD)

This statement is endorsed by:

  1. Centre for Trade Policy and Development (CTPD)
  2. Civil Society Organisations Extractive Industries Transparency Initiative (CSO-EITI)
  3. Council of Churches in Zambia (CCZ)
  4. Extractive Industries Transparency Alliance (EITA)
  5. Copperbelt Trade and Forum Development
  6. Zambia Land Alliance (ZLA)
  7. Publish What You Pay (PWYP)
  8. Caritas
  9. Oxfam
  10. DEGHA
  11. Southern Africa Resource Watch (SARW)
  12. Zambia Council for Social Development (ZCSD)

Human scars – the links between taxes and human rights

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.

    Human scars – Is there a hidden cost to tax? Case for Zambia and Zimbabwe

    Using community testimonies, interviews and experiences, this paper will demonstrate the cost of collected and uncollected tax from extractive industries in Zambia and Zimbabwe. Using casework drawn from work under the aegis of Publish What You Pay (PWYP) , this paper will seek to demonstrate the linkages between tax and human rights. It will argue for the need to locate tax at the centre of the human rights discourse focusing on corporate and state accountability. This is particularly important as the human rights international discourse has largely not looked at taxation issues in the context of corporate accountability.

    At first glance, tax and human rights are strange bedfellows. After all every tax system has the same objective to extract funds from companies and its citizens ostensibly for the delivery of public goods that the general citizenry would enjoy. The process of collecting tax from companies mainly looks at how much was collected and how the collected revenue is appropriated. What is at times missing in discussions around tax is the often hidden human cost, how that tax revenue was generated and the human rights impacts- especially on women, associated with how well the tax is collected and allocated.

    This paper attempts to demonstrate that the human element is not captured and left missing in the millions of dollars that governments proudly declare as having been collected from the extractive sector. The human element is also often missing in the millions of dollars more that extractive companies do not report as constitutive of the impact of extractivisim on millions of people. The authors argue that there are ‘human’ costs related to extraction that need to be concurrently reported on when governments and mining companies report on the revenues, profits and taxes.

    This paper seeks to demonstrate the linkages between tax and human rights. It argues for the need to locate tax at the centre of the human rights discourse focusing on corporate and state accountability. This is particularly important as the human rights international discourse has largely not looked at taxation issues in the context of corporate accountability.

    Authors: Mr Edmond Kangamungazi, Mr Gilbert Makore and Ms Carol Kiangura
    Affiliations of authors: Publish What You Pay (PWYP) Zambia and Zimbabwe members

    Legislate, don’t negotiate – Mineral resources: Zambia’s capital wealth?

    As in many other countries, taxes represent Zambia’s largest source of domestic revenue, making taxation issues vital for our country’s governance and development. The importance of taxation cannot be over-emphasized as governments are ushered into office based on their promises to revise tax regimes for the greater benefit of its citizens, only to lose power when they fail to do so. Balancing the different interests of government, taxpayers, employees, investors and other stakeholders is far from straight forward, and remains one of the major challenges of global tax justice.

    With over a century of mining activities in Zambia, mineral royalty should be one of the largest sources of domestic income for Zambia and was expected to contribute 12.7% to the total national budget of 2015. But the reality is that there is little to show for exploiting our resources. Zambia is one of the poorest countries in Africa with around 63% of the population living in poverty, and 7 out of 10 Zambians living on less than two dollars per day. Good policy and sound tax administration governing mineral exploitation should have created a steady income, as has happened in Botswana which relies heavily on natural resource production and has made strong economic progress. Instead, resistance from the mining companies to the proposed mineral royalty tax of 20% for open-pit operators and 9% for underground mines, pushed the Zambian government to resort to pegging royalties at 9% for both open pit and underground mining, and corporate income tax at 30% of government earning, leaving the government with a sizeable budget deficit.

    Minerals are non-renewable and once extracted, can never be replaced. Once Zambia’s copper, cobalt, coal, manganese, gold, uranium, emeralds will have been fully extracted, refined and exported, Zambia’s capital wealth will ultimately decline. This is why it is critical that the true value of extracted resources is recovered and that the revenue from mining is invested in a sustainable yet productive sector, otherwise the extraction of resources will end up making the country poorer. If not well handled, mineral extraction will lead to two forms of capital wealth depletion; depletion of mineral reserve deposits, and of above ground environmental assets. This, together with the fact that mining inevitably causes environmental and public health risks, raises the question; do the supposed benefits from the extraction of minerals out-weigh its hazardous costs?

    Mining companies are most often taxed based on the operation costs of the mining activities rather than on the actual value of the mineral. But determining what that operation cost should be is challenging and often swayed by the companies’ own reports and figures. In a country like Zambia, which is dominated by multinational companies, the taxing is made even more problematic because of the different schemes that the companies employ to reduce the taxes that they have to pay. Rather than paying taxes on their global income, many companies will pay it on their separate activities in different tax jurisdictions.

    With many goods and services being traded between different operating units within multinational organizations in their operation makes it easy for them to report losses and high production costs while the company remains profitable. By selling goods and services from an operating unit in a low tax jurisdiction to one in a higher tax jurisdiction at a relatively high transfer price, companies are able to reduce their overall tax payments, adding to the already difficult task of tax administrations.

    Another form of transfer pricing abuse can also happen when mines report a lower value of their production than its actual market value. They might under-report the actual volume of production or the grade of the mineral, or they may fail to report other products contained in the ore. For example, minerals such as gold and silver are sometimes found within Zambia’s copper ore. Checking the quality and content of all production not just in mines, but also in smelters poses significant problems for governments. Without proper processes in place and competent staff to operate them, under-reporting of production can cost government considerable tax revenue.

    To address this, the Zambian Government launched the Mineral Value Chain Monitoring Project in 2014, which aims to monitor, the country’s mineral resources throughout the value chain. Hosted by the Zambia Revenue Authority (ZRA), the objective is to provide accurate and reliable data and information on the mining sector helping to create effective policymaking and improve tax administration and mining sector oversight. If this proves efficient it will be a milestone for transparency in the extractive sector not only in Zambia but across the continent. Complimenting this, an EU backed Mineral Production Monitoring Support Project is being carried out under the supervision of the Ministry of Mines, Energy and Water Development (MMEWD) to effectively monitor mining activities and mineral production in Zambia, and to share this information with other relevant Government agencies, in order to facilitate the mobilization of the appropriate levels of domestic revenue.

    However, it is worrying though that there is no clear method for tax authorities to monitor goods and services that are traded between different operating units within multinationals. This still poses a challenge in determining the true operational costs of mining operations. Zambian transfer pricing provisions are assured by the Income Tax Act (ITA) of Zambia. However, there are no detailed rules on transfer pricing in Zambia, nor any clear cut penalties, a gap some companies have exploited. For instance, there are companies registered in Switzerland that have copper producing subsidiaries in Zambia. One such Zambian based subsidiary reportedly sells copper to its Swiss-based counterpart at below-market price. The Swiss-based company then sells the same copper at global prices as if it originated from Switzerland, netting the price difference as profit whilst consistently reporting losses in Zambia. Ironically, Switzerland has effectively become a “major copper exporter” despite the copper actually originating from Zambia.

    Zambia will only benefit from its mining activities when the true operational costs of mining and the “fair tax charge” are defined. This can only happen in Zambia when efficient measures are in place and accurate data is recorded. The time to maximize benefits is now, and our, PWYP Zambia coalitions’ urgent call is “Legislate, don’t Negotiate”.

    Charles Mulila

    I live in the Copperbelt and have seen the trend from the old days when we had the Zambia Consolidated copper mines, and used to have good CSR projects. But after the privatization of the mines, a lot is not being done. This has brought about much disappointment for communities, as people want to get better services, as we did in the past. This is what gives me the passion to be a civil society activist, so that we can see that we get something from the production of copper and the profits that are being made.

    I have been a civil society activist since 1992, and this has given me the spirit to want to champion for rights of communities. I can choose to work elsewhere and get a bigger salary, but being a CSO activist has given me the opportunity to be part of a process that looks at ensuring that the rights and needs of people that live around me are taken care of. There is a gap in this, and if I do not engage, I will always feel guilty, as I will keep feeling that I have done nothing to advocate for the rights of my community members. I believe that I have to leave the earth better than I found it.

    Africa is losing out as investors are taking advantage of our loose policies, so it is up to us to stand up and speak out, so that we contribute something to our country, region and to the world.


    PWYP Zambia was established in 2009 and has played a key role in EITI implementation, participating in the national multi-stakeholder group, analyzing EITI reports, working towards recommendations in the reports and helping draft Zambia’s EITI bill. Beyond that, the coalition has played keen role in influencing the legislative and policy framework governing extractives by making use of evidence based advocacy efforts.

    The coalition supports communities affected by mining, helping them to negotiate the best possible deal from extraction. Its latest achievements, challenges and learning are outlined in its 2015-2017 Narrative Report.