Domestic resource mobilization (DRM) can be defined as the accumulation of savings from resources generated domestically and their investment in socially productive activities. In a broad sense, DRM entails the mobilization of both human and financial resources available within the country.
In poorer and developing countries, DMR is primarily meant to increase the fiscal capacity of the country and improve the social return of public investments, promoting economic growth, internal consumption, an efficient and appropriate provision of public good and services from the State. DMR, therefore, are pivotal to a sustainable development of a country and, being domestic, presents other advantages compared to Overseas Development Assistance (ODA) and Foreign Direct Investments (FDIs), such as not having conditions/ political o economic strings attached by donors, and being less volatile and more predictable than foreign investments which, instead, vary according to the interests and objectives of the investors.
Furthermore, DMR promotes domestic ownership and greater control over the resources available by the State, thus representing the most significant and sustainable, autonomous source of financing for development. DMR are divided into private (mostly households and corporate savings) and public savings which are generated through taxation.
Taxes are of different types ( direct such as income taxes, indirect such as VAT or value added tax, corporate taxes, royalties…) and serve multiple purposes for the well-functioning of a state: primarily they are used to redistribute wealth among citizens, ensuring the provisions of those public goods and services ( health, education, defence, infrastructure construction etc…) which should be enjoyed by everyone regardless of their economic possibilities. In short, tax is the first sources of government revenue to ensure an efficient socio-economic system available to all citizens. It also encourages a better governance, as public expenditures financed through collecting taxes allows citizens to control and monitor their government, rendering them accountable and responsive to the needs of their citizen. It is precisely for this reason that tax can and should be considered at the core of the social contract between citizens and the State, can increase the legitimacy of state institutions towards their constituency and, eventually, improve the overall functioning of democracy in developing countries.
The mining industry is a complex economic sector, as resources are normally owned by the state but mostly extracted by private sector, their exploitation involves high risks as there is no guarantee of discovery or mine profitability and the development of a mining industry is capital intensive, with long lead times and massive impacts on the social and natural environments. Mineral prices are highly volatile and, therefore, companies normally require “stability clauses” to mitigate and minimise the risks associated with extractive activities. However, governments want to attract foreign investors and maximise the profitability of their minerals, hence States in resource rich countries often enter unfavourable deals with TNCs conceding them extremely favourable clauses and terms which prevent state authorities from getting sufficient revenues and allows companies to subtly dribble international human rights, social and environmental laws and standards, leaving inhabitants of mining communities far worse off.
Furthermore, whist several countries in Sub Saharan Africa are mineral dependent (meaning that a country’s mineral export accounts for >20% of total exports) the mining value addition ( the capacity to generate extra worth that comes from each stage of processing the minerals adding value to the ores themselves and/or to the domestic economy), still remains dramatically low across the region, and so is the contribution of the mining sector to the generation of fiscal revenues for the producing states.
At the first ATRN (African Tax Administration Forum) International tax workshop held at Victoria Falls in September 2013, participants agreed that governments’ shares of mining income should be between 40% to 60% in mining and between 65% to 85% in petroleum; all shares below this range should be cause for concern and regret. In 2013, however, Zimbabwe’ s mining sector only contributed 13% to the state coffers ( EY Zimbabwe 2015).
Government should accrue revenues from its mineral resources primarily through the taxes that mining companies pay to the state, according to project-specific “mining agreements” which discipline the fiscal term of the contract between the stakeholders. Unfortunately, disclosing the revenue sharing agreement still remains a key challenge for many African countries; in Zimbabwe, like in many other regional neighbours, the government does not publish the mining contracts it signs, nor the payments received by mining companies, thus keeping precious and essential information concerning the extractive sector away from the media and the general public, despite minerals being a public asset whose exploitation should benefit the whole population. Furthermore, secrecy and lack of access to information increase the risk of corruption and leakages of revenues, whilst facilitating the diversion of companies profits towards low-tax jurisdictions. Therefore, it is of outmost importance to advocate for the government and the TNCs to abide by international standards disclosing mining agreements as recommended by initiatives such EITI or several international stock exchanges.
Overall, the main type of taxes through which the government should generate revenues from mining are:
|Rates of royalties with effect from the 1st of January 2012|
|(b)||Other precious stones||10%|
|(c)||Gold||7% (5% as of 2014)|
|(e)||Other precious metals||4%|
|(h)||Coal bed methane||2%|