This paper analyzes tax incentives in the mining sector in Africa, establishes their ineffectiveness in contributing to a more inclusive and transformative use of mineral resources, and highlights the need for rethinking them altogether.

This paper reaches the following conclusions:

1. Limited effectiveness:
2. Revenue leakage & fiscal pressure: Poorly designed incentives (long durations, broad eligibility, rollover clauses, stabilization provisions) reduce governments’ fiscal space at a time when public spending on health, education and climate resilience is urgently needed. While there is no comprehensive assessment of the cost of tax incentives in Africa’s mining sector (or globally), available evidence does provide examples of the extent to which tax incentives can be detrimental for government revenues;
3. Tax incentives are less relevant to attracting mining investment. While one of the main arguments for giving incentives is that it attracts foreign direct investment, creates jobs and has positive spillovers to other sectors, there is limited empirical literature on the efficiency and effectiveness of mining tax incentives. Evidence suggests that sectors that are more mobile tend to benefit more from tax incentives than less mobile sectors, such as mining. From a mining investor perspective, other factors are more important in influencing investment decisions than tax incentives, including the location, amount, and quality of the mineral resources, existing skilled labour, the quality of infrastructure, and political stability and security;
4. Tax incentives in the mining sector are greater avenues for illicit financial flows. Multiple factors make the mining sector conducive to illicit financial flows. These include the predominance of multinational enterprises, which makes taxation of the sector very challenging due to aggressive tax planning.

The paper recommends:

1. Inventory & cost-benefit analysis of all incentives
2. Implement or strengthen sunset clauses
3. Tighten conditionality

For more insights, please visit the link below:

https://www.uneca.org/rethinking-tax-incentives-in-the-mining-sector-in-africa