The influence of taxation on mining activities in developing countries - an African perspective

Abstract

The economy in Africa is dependent largely on the mining industry and related foreign investment in Africa. The purpose of this study is to determine whether a balance has been achieved between the distribution of wealth to the government of a country and the company investing in that country by means of analysing the tax regime of the mining company. The current tax regimes of mining companies in South Africa as a primary field of study, and Zambia and the Democratic Republic of Congo as secondary fields, were evaluated in order to determine whether this balance has been achieved. A literature review was conducted to identify the components of tax on mines, factors influencing investor decision-making and the impact of tax revenues on the economy of African countries. Evaluation research was selected as the macro-level research design and secondary data in the form of tax legislation and related publications were studied and analysed in order to critically evaluate the tax regimes of South Africa, Zambia and the Democratic Republic of Congo. The World Bank, in conjunction with Pricewaterhouse Coopers, prepares an annual report on the ease of paying taxes. This study analyses the number of tax payments per year, the hours spent in complying with a tax regime and the total tax rate as a percentage of taxable profit for 181 economies across the world. The data collected for the selected countries in this report were compared. The results painted a clear picture as to how these countries compared with each other and the rest of the world. The analysis of hours spent and the number of payments are indicative of the complexity and administration of each country’s tax regime, where the total tax rate has a direct impact on investor profitability. The study concludes that a multitude of factors contribute to the willingness of investors to invest in a country, the mining tax regime being one of them. An optimal mining tax regime can only be defined on a macro-level and not by simply selecting favourable attributes from the components of mining tax. Copyright