Economic Appraisal of Zambia’s Mineral Taxation Regimes

Abstract

There has been a lot of outcry from the public that Zambia’s mineral tax reforms with an aim to optimize revenue benefits from the mines have not yielded the desired results. This has mainly been attributed to the weak design of its legislated mineral fiscal systems. Due to this underlying reason, this research aims at undertaking an economic appraisal of Zambia’s mineral taxation regimes with an objective of assessing their robustness so as to ultimately determine that which is sturdiest in design. This research brings forward a well compiled methodology of evaluating mineral fiscal regimes. It also possess the potential of acting as a future reference of optimizing Zambia’s mineral taxation where the most robust tax structure can act as a starting point in the optimization process. The appraisal used Lumwana Mine as case study and encapsulated five evaluation criterions. These include neutrality, progressivity, revenue raising potential, government risk and investor perception of risk. These measures have been selected as a criteria for evaluation because they best capture and explain the revenue generating objective of a taxation regime.  The economic appraisal framework employs spreadsheet modeling techniques and was anchored on two state of affairs which include the status quo and worst case scenario. Overall results indicate that Zambia’s mineral taxation systems except the 2008 regime are relatively robust in capturing mining revenue. It can be concluded that it is not a single tax that affects a mineral fiscal regime but the lump sum of all taxes and how they harmonize with each other. The study recommends that the government should review and optimize the current mineral taxation system as it is the most robust in design. Additionally, the government must increase the institutional capacity of Zambia Revenue Authority (ZRA).