posted on 2024-09-06, 05:40authored byLundstøl Olav, Raballand Gaël, Nyirongo Fuvya
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.
Funding
DfID, NORAD
History
Publisher
Institute of Development Studies
Citation
Olav, L., Gaël, R. and Fuvya, N. (2015) Low Government Revenue from the Mining Sector in Zambia and Tanzania: Fiscal Design, Technical Capacity or Political Will? ICTD Working Paper 9. Brighton: IDS.