BILL WATCH 30/2018
[8th October 2018]
Appropriation of Mining Claims, Taxes, Property Rights, and the Rule of Law
Two recent actions by the Government – the declaration of a military cantonment area on which there are mining claims and the imposition of an increased tax on electronic money transfers – have raised questions about the Government’s respect for property rights and, more broadly, its commitment to the rule of law.
What is the Rule of Law?
In our Constitution Watch 4/2010 entitled The Constitution and the Rule of Law [link] we discussed the rule of law and pointed out that although it was an elastic concept it basically meant that people’s rights and obligations must be determined and protected by laws rather than by individuals or groups of individuals exercising an arbitrary discretion. We noted that from this basic concept several principles are derived, including the following which have a bearing on property rights:
- Principle of Legality: People must not be deprived of their rights or freedoms through the exercise of wide discretionary powers by the Executive. Rights and freedoms should be curtailed only by the ordinary courts applying the law.
- Laws must be Certain: It must be possible for people to establish relatively easily the content of the law and the extent of their rights and duties under it.
- Laws must not be Retroactive: Laws should apply only to the future and should not attempt to change rights and duties retrospectively. It is futile for anyone to find out what his or her rights and duties are under the law if a future law can nullify those rights.
Property rights are protected under the rule of law: like other rights they must not be taken away arbitrarily or retroactively, and disputes over property rights must be resolved by independent and impartial courts according to the law.
Where property rights are not respected, the rule of law is absent.
Property Rights and the Constitution
Property rights are also specifically protected by our Constitution.
Section 71(2) states:
“Subject to section 72 [which deals with agricultural land], every person has the right, in any part of Zimbabwe, to acquire, hold, occupy, use, transfer, hypothecate, lease or dispose of all forms of property, either individually or in association with others.”
The section goes on to say that no one may be compulsorily deprived of their property unless stringent conditions are met, including the payment of fair and adequate compensation and the right to contest in court both the legality of the deprivation and the amount of compensation payable.
Section 3 of the Constitution states that one of the principles of good governance, which bind the State and all its institutions, is “due respect for vested rights”, i.e. for rights that belong to a person completely and unconditionally. Government cannot ride roughshod over vested rights.
For obvious reasons the Constitution recognises that the Government can impose taxes which oblige people to pay or hand over part of their property to the State, but the Constitution limits even that power:
- Section 298(1)(b)(i) states that the burden of taxation must be shared fairly.
- Section 298(2) states that no taxes may be levied except under the specific authority of the Constitution or an Act of Parliament.
So not only should property rights be protected out of respect for the rule of law, but the Government must also respect them by virtue of the Constitution.
As stated at the beginning of this bulletin, however, two recent incidents have cast doubt on the Government’s commitment to property rights, the rule of law and the Constitution.
1. Contested Appropriation of Mining Claims
SI 145/2018 gazetted the Defence (Cantonments) Notice, 2018 (No. 51) on the 3rd August, 2018 [link].
This notice, by the former Minister of Defence and War Veterans Affairs [Vice-President Retired General Chiwenga doubling as a Minister], declared the area of Darwendale North Farm to be a cantonment (i.e. a military camp) for the purposes of section 89 of the Defence Act. The notice means that access to the area by anyone other than Defence Force personnel requires special authorisation from the officer in command of the cantonment.
The validity of the Minister’s declaration has been challenged in a High Court application brought by RioZim Limited, a company with international connections which is the registered holder of chrome mining claims within the new cantonment area. RioZim alleges that two companies with connections to the Defence Forces and the Ministry of Defence started mining operations on its claims before the 3rd August, that these operations are continuing, and that the declaration of the cantonment followed RioZim’s refusal to enter into a tribute agreement under which one of the companies could mine the claims subject to payment of a royalty to RioZim.
The argument, in effect, is that the declaration of the cantonment is an improper attempt to exclude RioZim from the mining claims so that the two Government/Military -connected companies can exploit them. Even if that was not its purpose, the declaration resulted in the nullifying of mining claims without notice and without compensation, in violation of the Constitution and the rule of law.
2. Tax on Electronic Money Transfers
On Monday the 1st October the Minister of Finance and Economic Development delivered a statement on new fiscal measures in which he announced:
“I hereby review the Intermediated Money Transfer Tax from 5 cents per transaction to 2 cents per dollar transacted, effective 1 October 2018. I am therefore directing financial institutions, banks and ZIMRA, working together with telecommunication companies to extend the collection to all electronic transactions.”
So the tax increase was to have immediate effect even though no Act of Parliament or other law had been enacted to provide for it. Neither the Minister nor his advisers seem to have realised that the Constitution does not allow taxes to be imposed or altered by ministerial decree, or that such a decree, unsupported by any Act or statutory instrument, violates the rule of law.
Effect on Foreign Investment and Assistance
It is generally accepted that the economy is in crisis, caused by unsustainable levels of foreign and domestic debt, and that the only way out of the crisis is to attract investment and increase the Government’s tax revenues.
It is also generally accepted, by development economists if not by the Government of Zimbabwe, that good governance is the key to economic development. Good governance in this context entails respect for the Constitution, the rule of law and property rights, as well as certainty in the tax régime. Foreign and domestic investors have to know that their property rights will be respected by the Government and protected by the courts, and they must be confident, when planning their investments, that taxes will not be imposed or changed arbitrarily or without warning.
The two incidents outlined in this Bill Watch show that the Government has some way to go before it reaches the necessary standards to attract the investment we need so urgently.