Strengthening mining taxation for sustainable development
An ATI webinar organised in cooperation with the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) on key policy and administrative challenges in mining taxation, with country experiences from Ghana and Zambia.
On 15 April the webinar Strengthening mining taxation for sustainable development: Peer learning across ATI partner countries took place virtually in both English and French, gathering more than 65 participants. The event was organised by the Addis Tax Initiative (ATI) in cooperation with the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and moderated by Betty Ahwera, Technical Expert for Extractives at the African Tax Administration Forum (ATAF). The webinar aimed to improve participants’ understanding of policy and administrative challenges affecting mining taxation, to share practical country experiences, and to identify areas where the ATI and IGF can support further dialogue and technical assistance.
Policy and administration aspects of mining taxation
Jaqueline Taquiri, Senior Policy Advisor, and Viola Tarus, Policy Advisor for Tax and Extractives at IGF, opened with a joint presentation covering the key policy and administrative challenges in mining taxation. They began by situating why mining activities are taxed differently: extractive resources are exhaustible, involve high sunk costs and long production periods, are dominated by multinational enterprises, and generate potentially substantial economic rents. However, taxing some or all of this rent — the surplus return above what is needed to retain a factor in its current use — should in principle not deter economic activity, making the design of mining fiscal regimes a question of how effectively governments capture this surplus.
A live poll confirmed that most participants work in contexts where extractive industries are subject to a separate tax regime: 69% of respondents indicated this was the case in their country. When asked about the main objectives of their mining fiscal regime, attracting foreign investment (29%) and maximising government revenue over the project life (25%) were cited most frequently, followed by securing early government revenues (16%).
The presenters outlined three common challenges in designing mining fiscal policy. First, tax treaties can be exploited through treaty shopping, where investments are routed through low-tax jurisdictions, and renegotiating or updating treaties remains complex and resource-intensive. Second, stabilisation clauses, while intended to provide investors with certainty, can restrict governments’ ability to update laws and regulations and may freeze tax regimes even when economic conditions change significantly. Third, tax incentives are often introduced without rigorous cost-benefit analysis or sunset clauses, and can trigger behavioural responses that increase revenue losses beyond the intended scope of the incentive. A further participant poll showed that most participating countries offer multiple fiscal incentives to mining investors (31% of respondents selected more than one), with corporate income tax holidays (28%) and export processing zones and fiscal stabilisation provisions (14% each) among the most common.
Turning to tax administration, the presentation highlighted the specific challenges posed by multinational mining companies. Tax arbitrage, the mobility of capital and functions, and information asymmetry enable a range of profit-shifting strategies: shifting income to low- or no-tax jurisdictions, inflating deductions through intra-group charges for management fees, services, or interest payments, treaty shopping to avoid withholding taxes, and avoiding taxable presence despite real economic activity. The IMF estimates that African countries alone are losing USD 470 to 730 million annually from tax avoidance in the mining sector — a figure the presenters noted they consider conservative. The arm’s length principle was emphasised as the international standard for addressing transfer pricing risks, ensuring that transactions between related companies reflect what independent enterprises would agree in comparable circumstances.
Participants were also polled on their experiences with tax administration challenges. When asked where tax authorities face the greatest challenge in auditing mining multinationals, 37% selected more than one area, while verifying the arm’s length price of mineral exports (21%) and limited information from multinational enterprises (21%) were each cited as specific concerns. On the question of which fiscal instruments are most difficult to administer, resource rent taxes and windfall taxes stood out (33%), followed by variable royalties (16%), with 37% again selecting more than one instrument.
The presentation concluded by noting that countries are increasingly seeking simpler, fairer, and more equitable fiscal regimes, guided by four principles: simplicity in administration, including the use of quoted commodity prices to limit transfer pricing risks; participation, with governments seeking more direct involvement in resource extraction; fairness, through regimes that respond to price fluctuations and transparent licensing processes; and compensation, ensuring that affected communities benefit from mining and that the environmental costs of extraction are accounted for.
Country experience: Ghana
Wisdom Puplampu, Assistant Manager for Research and Statistics at the Minerals Commission of Ghana, presented Ghana’s experience with stability and development agreements in mining. Under the framework introduced in 2006, Ghana adopted stability agreements providing fiscal certainty for up to 15 years and development agreements for investments exceeding USD 500 million. In practice, however, many development agreements resulted in negotiated fiscal terms more favourable than the standard regime. While statutory royalty rates were higher, some agreements allowed reduced royalties of around 2.5%, leading to significant revenue losses.
Several provisions within these agreements contributed to tax base erosion: deductions for management and technical services calculated as a percentage of revenue, full VAT exemptions on imports and local purchases, unlimited loss carry-forward provisions, the treatment of capital expenditures such as waste stripping as operating expenses, and high levels of permitted debt financing (up to 75%), increasing the risk of excessive interest deductions. The extensive use of related-party transactions and intra-group financing arrangements further heightened profit-shifting risks. Puplampu also highlighted legal ambiguities, particularly regarding how the USD 500 million investment threshold was defined, which allowed some companies to benefit from development agreements based on investments predating the legal framework. Companies operating under these agreements account for approximately 50% of large-scale mining output, creating significant administrative complexity.
After more than 20 years of experience, there is a general consensus that these agreements did not effectively attract additional investment but instead led to substantial revenue losses, including reduced revenues available to local governments and mining communities. Ghana is now pursuing reforms under a new mining bill to eliminate both stability and development agreements, reduce reliance on tax incentives, and adopt a variable, price-linked royalty system recently passed by Parliament. This reflects a broader policy shift, recognising that investment attraction depends primarily on strong fundamentals — political stability, a mature mining sector, and skilled labour — rather than on fiscal concessions.
Country experience: Zambia
Ignatius Mvula, Director of the Specialised Tax Office for Mining at the Zambia Revenue Authority (ZRA), presented Zambia’s experience in strengthening both tax policy and tax administration in the mining sector. Zambia’s mining taxation framework is built around a combination of corporate income tax, mineral royalties, and property transfer taxes, reflecting the central role of copper production in the economy. In the early 2000s, when copper prices were low, Zambia entered into development agreements to attract investment. As prices rose, however, it became clear that these agreements severely limited government revenue. Around 2007–2008, the country undertook major reforms to eliminate development agreements and consolidate fiscal terms into legislation.
A range of fiscal measures have since been introduced to strengthen revenue mobilisation. These include a variable corporate income tax regime ranging from 30% to 45% depending on profitability, a progressive mineral royalty regime ranging from 4% to 10% based on copper prices, measures to limit the use of losses so that at least 50% of profits remain taxable, and reforms to interest deductibility replacing thin capitalisation rules with BEPS-aligned fixed ratio rules. To address transfer pricing risks, Zambia has introduced reference pricing based on international benchmarks such as London Metal Exchange (LME) prices and adopted the “sixth method” for pricing mineral sales, particularly for copper. Zambia also uses the arm’s length principle following OECD and UN guidelines, with the sixth method applied as a reference price for selected minerals.
On the administrative side, Zambia has established a dedicated mining tax unit covering all taxes applicable to the sector and adopted a differentiated approach to taxpayers based on size. The country has implemented cooperative compliance frameworks for large taxpayers and developed a mineral value chain monitoring system, supported by technical experts including engineers and economists, to improve oversight of production, exports, and pricing. Inter-agency collaboration between tax authorities, ministries of mines, and other regulators has been strengthened through digital systems for real-time reporting of mineral production and exports. These reforms have been complemented by policies to encourage exploration, including 100% capital expenditure deductions and VAT input recovery during the exploration phase.
Open Q&A
The presentations were followed by an open discussion facilitated by IGF. Several themes emerged from the exchange. On the question of fiscal incentives, participants noted that capital expenditure incentives allowing accelerated depreciation on equipment and machinery are also common in the sector, alongside the incentives discussed in the presentation. IGF noted that incentives related to loss carry-forward are widespread and that countries should consider whether unlimited loss carry-forward provisions are necessary. A broader point was made that cost-based incentives are generally more appropriate for the mining sector than profit-based incentives.
Stabilisation clauses prompted a lively exchange. A participant noted that modern stability clauses have evolved significantly and are no longer treated as absolute prohibitions on change but rather as mechanisms to preserve a workable economic equilibrium, ensuring that regulatory or fiscal changes remain within a tolerable cost range as anticipated in the project’s financial model. IGF confirmed this evolution, noting that the scope of stabilisation has become more carefully designed and limited to the commercial rationale of the project, balancing stability against adaptability.
The question of whether royalty payments should be tax-deductible for corporate income tax purposes also generated discussion. IGF noted that while some countries are making royalties non-deductible, the impact on investor returns needs to be carefully modelled: if the royalty rate is high, non-deductibility can reduce returns drastically, potentially prompting investors to request concessions that offset the intended revenue gains. A participant working in Zambia illustrated this point with the country’s own experience: between 2019 and 2021, Zambia made mineral royalties non-deductible, which significantly raised the effective tax rate, stalled investment, and led to severe industry complaints of double taxation, ultimately prompting a reversal in 2022.
Closing remarks and outlook
In her closing remarks, Betty Ahwera underscored the importance of continued peer learning and collaboration between the ATI, IGF, and ATAF in supporting resource-rich countries to strengthen their mining tax systems. Ahwera also pointed to the growing interest among governments in direct participation in the mining sector, including through equity stakes and licence ownership, as a means of securing a more direct share of resource revenues. Ultimately, IGF stressed its readiness to continue providing technical assistance to ATI partner countries, including through its online request mechanism which you can access here.