Analysing the extractive industry fiscal policies in sub-Saharan Africa

Buried beneath the surface of sub-Saharan Africa (SSA) is an abundance of valuable and extractable natural resources, making its mining industry one of the most important in the world (Garside, 2020). Out of the 54 countries in Africa, 20 are considered by the International Monetary Fund (IMF) to be rich in natural resources i.e., countries whose natural resources account for more than 25 per cent of total exports. All 20 of these countries are situated in SSA and, as such, the significant weight of the extractive sector in these states raises the question of the taxation of these natural resources, which are non-renewable, in the region (Bouterige et al., 2020). Various sub-Saharan countries, in recent years, have been introducing legal and regulatory changes with the aim to increase the revenues from mining and improve community engagement/ participation in mining projects to further popularise this sector (Poustie et al., 2019). Following an increase in commodity prices in the 2000s and recent natural reserve discoveries in the region, many countries in SSA reformed their mining acts to shift the onus of taxation onto the mining companies. As such, increase in mining royalty rates, reappearance of mineral resource rent taxes and of free equity for the State have been observed throughout the region (Bouterige et al., 2020). For example, the Democratic Republic of Congo (DRC) published a new mining code on 28 March 2018 to increase royalty payments as well as increase taxes by 2-10%. It also introduced a new "super profits" tax of 50% on profits exceeding 25% of the forecasted value. Furthermore, it introduced an obligation for 0.3% of turnover to be contributed to development projects and that 10% of the capital of mining companies to be held by Congolese citizens. Similarly, Zambia has recently taken steps to deal with dwindling foreign currency reserves and increasing public debt. These include an increase in the country's sliding scale for mining royalties in September 2019 (including a new 10% tax when the price of copper exceeds $7,500 per tonne), an announcement in October 2018 that mines will have to pay royalties in dollars to help stabilise the Kwacha, introduction of new mining duties and a new sales tax in December 2018; and the introduction of a new 5% copper import duty (Poustie et al., 2019). However, this vast abundance of natural resources and the various measures put in place to tax the mining sector in SSA doesn’t necessarily translate to social gains for the countries in this region (Maroun et al., 2019). Despite being rich in resources and having a lot of investors, countries in SSA still tend to lose out on revenue from the extractive sector. Inadequate legal and regulatory frameworks, ineffective administrative systems and widespread tax evasion by mining companies are often cited as the main culprits for this loss in tax revenues. Lack of access to information required to impose the right amount of taxes, monitor compliance and audit mining companies often prevents revenue administrations from employing even their basic frameworks and systems. As a result, the region loses out annually on mining taxes accounting up to 6% of African GDP (Linder, 2019).