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Low Government Revenue from the Mining Sector in Zambia and Tanzania: Fiscal Design, Technical Capacity or Political Will?

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posted on 2024-09-06, 05:40 authored by Lundstøl 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.

Series

ICTD Working Paper 9

IDS Item Types

IDS Working Paper

Copyright holder

IDS

Country

Tanzania; Zambia

Language

en

Identifier ISBN

978-1-78118-115-7

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    International Centre for Tax and Development

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