Towards an optimal capturing of rent for Zambia's large scale copper miming industry
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Zambia is largely a mineral economy faced with challenges of designing a tax system that meets two fundamental objectives namely to ensure a fair share of rent for itself and simultaneously allowing for sufficient investment revenues needed by investors. Zambia’s mine fiscal regime has evolved more than six times from privatisation time to date with the aim of striking a win-win situation in the capturing of mineral rents. These changes have not yielded satisfactory results since tax revenue captured has regularly remained lower than 4 percent of the gross domestic product (GDP). The main objective of this thesis is to examine the underlying reasons for the failure and how Zambia can optimise its rent capturing as part of a solution to the current problems facing the copper mining industry. Literature reviewed highlighted various issues needed to optimise rent capturing from the mining industry covering the theoretical concepts of economic rent, optimal taxation and perspectives on “good tax” criteria as a condition for resource taxation. Furthermore, literature review covered concepts dealing with a blend of key taxation instruments and evaluation of their competitiveness, investment incentives, equity participation arrangements, institutional capacities, and additional benefits to mineral taxation clarified by social investment and local content. Data was collected from a range of “experts” in the mining industry through a survey by semi-structured interview and structured questionnaire employing a non-probability purposive sampling for both. Thirteen interviews were conducted and 120 questionnaires were distributed to people covering the same scope of sources of information, to obtain experts’ views based on the study objectives informed by the literature reviews. Out of these, 82 responses were received. Results were achieved based on literature reviews, interview and questionnaire survey, competitive assessment of the mine fiscal regime using international best practice and quantitative evaluation of the fiscal regime through a stylised copper model. The study established that optimal capturing of rent in Zambia is devoid of a “best taxation” model for arguing taxation matters. Additionally, the study ascertained the underlying reasons for Zambia’s failure to capture optimal rent including; poor design of the tax regimes that are inflexible to meet economic perspectives, improper evaluation of granted tax incentives, weak institutional capacities affecting tax administration and sector monitoring, dismal equity stake performance, and suboptimal performance of non-fiscal benefits dealing with social investment and local content. These findings have significant implications for designing and performance of the Zambian mine taxation system and it is concluded that Zambia’s mineral fiscal regime is not adequately structured to optimise rent capturing consistent with the interests of both investors and government. vi Inductively, the study proposes a guide for the appropriation of an optimal government share of rent through the need to have parameters for fiscal stability, transparency and progressivity in the design of fiscal regime, maintaining headline fiscal tools consistent with global norms and instituting the excess-profit tax indexed to price movements. Other indicators include, satiated cost-benefit analysis for the offered tax incentives, government assuming equity stake in new and viable mineral projects, and need for strengthening institutional capacities.
The University of Zambia
- Mines