INTRODUCTION
Environmental, Social, and Governance (ESG) considerations have increasingly become central to corporate strategy and investment decisions worldwide. As global regulators intensify their focus on sustainable practices, businesses must adeptly navigate the complexities of tax regulations while aligning their operations with broader ESG objectives. In Zimbabwe, the intersection of ESG and tax represents a critical and evolving area of corporate governance that companies must address to integrate tax strategies with their ESG goals effectively.

UNDERSTANDING ESG

Environmental
ESG’s environmental dimension assesses a company’s efforts to reduce its carbon footprint, manage waste responsibly, use resources efficiently, and address climate change impacts.

Social
This aspect focuses on how companies manage their relationships with employees, suppliers, customers, and local communities. Key issues include labour relations, human rights, and community engagement.

Governance
Governance covers corporate leadership, internal controls, and transparency. It ensures ethical decision-making, shareholder rights, and compliance with regulatory standards.

THE ROLE OF TAX IN ESG
Tax Strategy and Transparency
An effective ESG strategy includes transparent tax practices. Companies are expected to disclose their tax strategies, including risk management and approaches to tax avoidance.

Tax Incentives for Sustainable Practices
The Zimbabwean government offers various tax incentives to promote sustainable business practices. These include tax credits and deductions for investments in renewable energy and other environmentally friendly initiatives.

ESG & TAX IN ZIMBABWE
We set out below some of the various ESG Tax related provisions in terms of Zimbabwean law.

Environmental Management Act [Chapter 20:27]
Imposes taxes on pollution and environmental damage. Further Statutory Instrument 10 of 2019 sets out the environmental levy rates payable by industries and activities that harm the environment, including:

• Water pollution US$0.05 per cubic meter of waste water discharged
• air pollution US$0.05 per kilogram of pollutant

                                                                                                                               The Carbon Credits Trading (General) Regulations, 2023, (Statutory Instrument 150 of 2023) provide a framework in which carbon credits were introduced as a mechanism to reduce greenhouse gas emissions. These regulations provide for the legal framework necessary for ensuring sustainable development and account for the country’s contribution towards global efforts to reduce or remove greenhouse gas emissions.

Customs and Excise Act [Chapter 23:02]
Introduced a carbon tax credit to incentivize reduced greenhouse gas liter emissions. The tax is set at $0.03 per of petroleum and diesel, payable in foreign currency.

Green Environment Incentives:

(a) National Project Status (NPS): National Project Status (NPS), which is envisaged in terms of section 141 of the Customs and Excise (General) Regulations, 2001 (SI 154 of 2001) and is obtainable for projects that have national impact, bring benefit to the economy and create employment. Incentives available under this regime include:Duty rebates on importation of raw materials.

• Duty Free imports on solar panels, solar equipment, electric motors, energy savers and lithium-ion batteries; and net-metering.
• Zero-rated Corporate Income Tax for the first five years of operation of the SEZ with a corporate tax rate of 15% applying thereafter;
• Special deductions applicable to farmers i.e. water conservation works, soil erosion prevention works

(b) Income Tax Act [Chapter 23:06]:
Provides tax incentives for investments in renewable energy and environmental conservation.

• BOOT/BOT Operations: Taxed at 0% for the first five years, 15% for the next five years, and 25% thereafter according to the Finance act 23:04 section 14 which outlines the rates of income tax and other taxes levied.
• Industrial Park Developers: Taxed at 0% for the first five years, 25% thereafter.
• Export-Based Tax Rates: Preferential rates based on export percentages, with lower rates for higher export volumes (e.g., 15% for exports over 51%).

SOCIAL INITIATIVES
Taxes are an integral part of Governments’ fiscal policy and businesses are required to pay taxes as a means of contributing to social development. The taxes paid are used to fund essential services such as education, healthcare, infrastructure, security, and social welfare programs. This benefits everyone in society, including the businesses themselves.

The Indigenization and Economic Empowerment Act [Chapter 14:33]. The Act is aimed at promoting economic empowerment of indigenous Zimbabweans. It provides various tax incentives to encourage local ownership and control of businesses.

Further, the Government plays a pivotal role in promoting social pillar by employing tax credits as employed by the Income Tax Act [Chapter 23:06] and incentives that benefit different groups of people as listed below:

• Elderly persons’ credit.
• Blind persons’ credit.
• Invalid appliances and medical expenses.
• Mental or physically disabled people’s tax credit.
• Tax credits available to corporate entities in Zimbabwe.

GOVERNANCE CONSIDERATIONS
Tax compliance is a positive indicator of good corporate governance and good tax governance will, amongst others, improve a company’s compliance with relevant tax laws/regulations which is essential for funding public services and supporting economic growth, establishing a transparent relationship with relevant tax authorities, effectively and sustainably manage tax risk for stakeholders.

• Tax Registrations and Compliance: Includes timely payment of taxes, submission of returns, and maintaining records for at least six years.
• Internal Controls: Ensures tax strategies combat evasion and comply with avoidance regulations.
• Regulatory Interaction: Involves allowing ZIMRA to examine business operations and reporting any changes in business status.

Companies adopting transparent and ethical tax practices can enhance their reputation and strengthen stakeholder relationships. Leveraging tax incentives for sustainable investments not only provides financial benefits but also aligns with long-term strategic goals, positioning companies as leaders in sustainability. By effectively integrating ESG considerations with tax strategies, companies in Zimbabwe can navigate the complex landscape of sustainable business practices and regulatory compliance, achieving both compliance and a competitive edge in the market.

For further inquiries, you may contact our Tax Law Practice Group at info@mmmlawfirm.co.zw