Paper short abstract:

This paper explores current challenges of tax regimes in resource abundant African countries, using Zambia as an example, in light of a new scramble for continent's hydrocarbons and minerals and concomitant resource nationalism that it has provoked.

Paper long abstract:

Nothing is certain but death and taxes - says an old proverb. Yet in many resource abundant African economies this common wisdom fails to explain the reality. Foreign companies pay little or no taxes, capture a large portion of the mineral rent and leave the government with relatively small pay-off from the underground riches. In Zambia, one of the world's leading copper producers, for example, in 2011 only two mining companies have declared profit. The tax revenues are generally low, so is the mining industry's contribution to the national budget. Transfer pricing and tax evasion is a commonplace. The new administration of Micheal Sata has pledged an overhaul of the current tax regime, which would enable Zambians to (re-) acquire a larger stake in the country's huge mineral wealth. But the strategy proved politically more difficult than expected and only minor changes have been introduced so far, including doubling royalties and reducing capital allowances. In the global setting, low taxes and stable political environment remain important incentives for foreign investors; in Zambia rising mining costs make foreign companies more uneasy about the future. This presents Zambia with a political dilemma of how to structure its mineral tax regime towards two ends: keeping foreign investors interested in digging copper by offering friendly and stable fiscal environment but also let Zambian more fully benefit from the copper deposits. This paper's objective is to shed more light on this conundrum and sketch possible scenarios that would be feasible for Zambia.