Review and Restructure of Zambia's 2008 Mining Windfall Tax

Zambia is richly endowed with mineral wealth. However, it is still encapsulated in the resource curse conundrum. This is because the benefits of mineral wealth have not translated into public development. This has sparked a lot of debate among the Zambian citizenry as to whether the mineral fiscal policies instituted over time have been robust in capturing mining revenue. One issue has always stood out in these mineral taxation debates and this is the reintroduction of the 2008 mining windfall tax. Though this is the case, the Zambian citizenry has not been informed of the various issues leading to its revocation. This paper tries to undertake a critical review and restructure of this tax instrument to rectify the inherent technical lapses in its design. This has been realized by treating the payable amount of this tax as a deductible expense in the income statement and by indexing the trigger prices for inflation. The results of this research indicate that the restructured tax instrument has the potential of maximizing the capture of windfall gains without imposing a higher than normal average effective tax rate and marginal effective tax rate on a mining firm’s pre-tax cash flows. This in turn retains capital to the mining firm for further exploration and other mine developmental activities. However, this tax needs to be balanced with other tax instruments for greater efficiency and effectiveness in its application. Advancing this cause calls for a sound judgement on the part of policy formulators.