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By Veritas
In early medieval Europe, taxes were often paid in kind, with taxpayers providing labour or other services or handing over goods and produce to the tax collectors. A thousand years or so later, Zimbabwe adopted the same system for the payment of miners’ royalties.
On the 4th of November, the President published a Statutory Instrument, the Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Finance Act) Regulations, 2022 [SI 189 of 2022] [link], which requires miners to pay royalties partly in kind, partly in foreign currency and partly in local currency.
What the SI Does
Under the Mines and Minerals Act, miners have to pay taxes called royalties on the output from their mining locations. Royalties are paid to the Zimbabwe Revenue Authority [ZIMRA], and the amounts of royalties and the way in which they are collected are laid down in the Finance Act.
The SI purports to amend the Finance Act so that, with effect from the 1st of October 2022:
· Royalties for gold, diamonds, platinum, lithium, and other minerals prescribed by the Reserve Bank in a statutory instrument must be paid:
o 50 percent in kind, in a form and purity or quality prescribed by the Reserve Bank in a statutory instrument,
o 10 percent in foreign currency (in cash), and
o 40 percent in Zimbabwe currency.
· Royalties for other minerals must be paid:
o 50 percent in foreign currency (not necessarily in cash), and
o 50 percent in Zimbabwe currency.
The SI also amends the Reserve Bank of Zimbabwe Act to permit the Bank to keep reserves of diamonds, platinum, and lithium. The Bank is given the power to make statutory instruments specifying other minerals that may be kept as reserves.
Some Questionable Features
The SI has some odd features which suggest it has not been carefully thought out:
· It is retroactive, that is to say, it is back-dated to the 1st of October. This may render the SI invalid – we shall return to the point later – but in any event, it is difficult to see how royalties payable in kind can be collected in retrospect if the minerals on which royalties are to be paid retrospectively have already been delivered to the purchasers.
· In terms of section 37A of the Finance Act, financial institutions [i.e. banks] that receive proceeds from the sale of minerals are responsible for deducting royalties from the proceeds and remitting the royalties to ZIMRA. Banks obviously cannot deduct royalties that are payable in kind, so who must do so? The SI does not say, nor does the Finance Act.
· The SI and the Finance Act are silent as to how ZIMRA, to whom the royalties must be paid, will transfer the minerals to the Reserve Bank, which is expected to hold the minerals as part of the Bank’s reserves. Normally taxes must be paid into the Government’s Consolidated Revenue Fund.
Is the SI Valid?
The SI is made in terms of section 2 of the Presidential Powers (Temporary Measures) Act, which we shall call “the Presidential Powers Act” for brevity. The Act empowers the President to make regulations dealing with any situation he considers needs to be dealt with urgently and cannot be dealt with under any other law. The regulations may provide for anything that can be covered in an Act of Parliament, but they are valid for only six months – to give Parliament time, if it thinks fit, to replace the regulations with permanent legislation.
There are at least four grounds on which the SI might be held to be invalid.
1. Failure to consult
Section 3 of the Presidential Powers Act requires the President to consult the public before making regulations under the Act, “unless he considers it inexpedient to do so because of the urgency of the situation”. The President did not engage in public consultation before publishing SI 189 of 2022, and it is hard to discern any urgency that would have made it inexpedient for him to do so. Perhaps the need for consultation did not even cross the President’s mind because neither he nor his predecessor have ever consulted the public before making regulations under the Act.
Although section 3(3) of the Act states that a failure to consult does not invalidate regulations, it may still be possible to challenge the SI on this ground:
· The President must at least consider whether or not to consult the public about proposed regulations, and his record to date suggests he may not have done so.
· Even if he did decide not to consult the public, his decision could be regarded as irrational because there was no obvious urgency precluding consultation. The Minister of Finance could have arranged the necessary amendments to the Finance Act in July at the time of his mid-term Fiscal Policy Review, and he can still do so in the budget legislation that will shortly be going through Parliament. There seems to have been no need for the President to resort to regulations under the Presidential Powers Act, which should be reserved for emergencies.
2. Retroactivity
The SI is retroactive, as we have said, and the law generally frowns on retroactive legislation. Such legislation infringes vested rights and “due respect for vested rights” is one of the founding values set out in section 3 of the Constitution. This SI infringes the vested right of miners to pay their royalties in money.
3. Taxes are a matter for Parliament, not the Executive
As we have already indicated, the Presidential Powers Act gives the President very wide law-making power – his regulations:
“may provide for any matter or thing for which Parliament can make provision in an Act”.
Wide though this power is, it must be read with the Constitution, which says in section 298(2):
“(2) No taxes may be levied except under the specific authority of this Constitution or an Act of Parliament.”
The section enunciates the fundamental constitutional principle that Parliament is responsible for levying taxes, a principle that is vital for the separation of powers – itself a fundamental value set out in section 3 of the Constitution – and for the maintenance of democracy itself.
The Presidential Powers Act does not say specifically that Presidential regulations can levy taxes or alter them, so the President cannot use the Act to make such regulations.
4. Invalidity of the Presidential Powers Act
Another fundamental reason for regarding SI 189/2022 as invalid is that the Presidential Powers Act is itself unconstitutional. In Veritas’s view the Act amounts to an abrogation or delegation of Parliament’s primary law-making power in violation of section 134 of the Constitution: see Constitution Watch 1/2014 of the 25th January 2014 [link].
If the Act is unconstitutional then regulations purportedly made under it are invalid.
Conclusion
Making laws through presidential powers rather than through Parliament is inimical to democracy and should be resorted to only in cases of direst emergency. There was no such emergency in this case.
Parliament will have an opportunity to consider the SI in the near future because under section 4 of the Presidential Powers Act it must be laid before Parliament [presumably both the Senate and the National Assembly] within eight sitting days after it was published. The National Assembly has already sat for three days and the Senate for four days since the SI was published on the 4th of November, and the eight-day time limit will soon be up. When the SI is laid before the two Houses it is to be hoped that Senators and Members will question the responsible Minister – presumably, the Minister of Finance – very closely as to why he allowed such an emergency to develop that resort had to be made to the Presidential Powers Act. And there are other questions they should ask him too:
· If the Government really has faith in the Zimbabwe dollar, why must royalties be paid in kind and in foreign currency?
· Who will keep records and inventories of the minerals that have been delivered?
· Will Parliament and the public be informed regularly about how much gold and other minerals have been delivered to the Reserve Bank?
· Generally, what safeguards will be put in place against corrupt theft or misappropriation of the minerals?