Low Government Revenue from the Mining Sector in Zambia and Tanzania: Fiscal Design, Technical Capacity or Political Will?
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Date
2015-09-19Author
Olav, Lundstøl
Gaël, Raballand
Fuvya, Nyirongo
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Abstract
The contribution of mining to economic and social development in Sub-Saharan Africa is
under increased scrutiny and criticism. Minerals are non-renewable resources, and
production represents a transformation from a subsoil to a financial asset. Unless the gains
are efficiently captured, saved and invested by the ultimate owner of the resource, the
country in question could experience a net reduction in its national wealth.
Preliminary empirical evidence indicates that effective benefit-sharing in mining has been
notoriously difficult to achieve. In this paper, we present a simple method to benchmark the
degree of revenue-sharing in some major mining countries. This is utilised to estimate the
amount of mining revenue foregone due to ineffective mining revenue-sharing in our case
countries of Tanzania and Zambia during the period 1998-2011. Using company-level data
from the recently published Extractive Industries Transparency Initiative (EITI) reports in the
two countries, we find that profit-based corporate tax made a very modest contribution to
mining revenue, despite 5-10 years of operations under the current owners and a global
mineral super cycle since 2005/6 (TEITI 2011; TEITI 2012; ZEITI 2011; ZEITI 2012). Gross
value-based corporate taxes, together with employee-based taxes, dominate the tax revenue
collected from the mining sector.
The principal elements needed to secure improved revenue-sharing in mining are: i) robust
fiscal design, including a progressive element to capture windfalls while encouraging costsaving
and production; ii) specialised tax administration for extractive industries and mining,
to minimise the erosion of the tax base and to establish and enforce correct tax
assessments; and iii) political will and accountability, together with government consistency,
in order to secure the expected tax collection from mineral extraction over time with
increased transparency of mining-related revenues.