Reform Artisanal and Small Scale Gold Mining Taxation

By Webby Banda

Mining remains the backbone of Zambia’s economy accounting for 12% of gross domestic product, 28% of domestic revenue generation, and over 50,000 jobs both directly and indirectly. The proliferation of extracting maximal benefits from Zambia’s mining sector depends on the robust design of mining taxation. A robust mining taxation regime should raise sufficient revenue for the Government but at the same time provide fiscal space for mining companies to continue in operation. This involves determining a sweet fiscal spot that attains this balance. It is worth mentioning that achieving this is no easy task.

The current mining taxation system does not differentiate between large and small scale operators. This has led to overtaxing of the latter. It is important to be alive to the fact that artisanal and small-scale mining is increasingly being seen as a source of hope for many Zambians that cannot get jobs in the formal sector. To this extent, the Government needs to put systems in place that will ensure the maximum benefit of the Zambian people from artisanal and small-scale mining. These systems should include a taxation regime with a low fiscal burden to encourage growth.

Recently, the Government has declared Gold as a strategic mineral. This means it must induce macro-economic stability by propping up the national reserves at the Bank of Zambia (BoZ) and reducing poverty through the vehicle of artisanal and small-scale mining.

ZCCM-IH plans to collect a target of 40,000 Kgs of gold from artisanal and small-scale miners as well as other sources. However, this objective cannot be attained if the artisanal and small-scale miners are highly taxed.

The Centre for Trade Policy and Development (CTPD) wishes to put it on record that the current high tax burden has the potential to reverse the formalization process. This is because artisanal and small-scale miners will shy away from stepping into the formalization space to prevent their hard-earned gold production being taxed away.

CTPD is currently undertaking a study on artisanal and small-scale gold mining taxation. The study this far reveals that the current fiscal instruments generate an Average Effective Tax Rate (AETR) and Marginal Effective Tax Rate (METR) of 71% and 113%, respectively. These statistics clearly show that the artisanal and small-scale gold mining sector is highly taxed. The government is in a process of reforming the Mines and Minerals Development Act No.11 of 2015. This provides an opportunity to craft sector-specific mineral royalty schemes for artisanal and small-scale mining. In specifically lowering the tax burden on gold, CTPD wishes to recommend the following to government:

1. Scrap off the turnover/corporate income tax applicable to the artisanal and small-scale gold mining sector,
2. Scrap off the current mineral royalty and introduce a production-based mineral royalty pegged at $1/gram; and
3. Possibly revise other fiscal terms.

Once the artisanal and small-scale mining sector has attained an acceptable level of formalization and growth, the fiscal terms can be revised to increase the revenue stake of Government in the sector.

The Author is a Senior Researcher -Extractives at Centre for Trade Policy and Development (CTPD)