An assessment of the Angolan mineral taxation regime: considerations for possible improvements on government´s revenue

Abstract

Angola is host to 36 of the 51 critical minerals in the world and ranks third in mineral exports, totalling over USD 1 billion in 2020, and third in diamond production; Botswana and South Africa hold the top two slots, respectively. These untapped opportunities make the Angolan mining industry an excellent place to invest despite the mining industry contributing less than 1% to GDP and has yet to become a driver of economic diversification. In June 2022, Angola joined the EITI, bringing a welcome improvement in the transparency of the sector´s governance and reform, intended to attract new investors. The study evaluates the effectiveness of the Angolan mineral fiscal system as a tool for maximising revenue for the benefit of its citizens and securing investment (local and foreign) to promote linkages and broad-based national growth and development. Four objectives were examined in this study: (i) Conduct a situational analysis of the current fiscal regime through a comparative analysis of headline rates in regional and international countries; (ii) Qualitative evaluation of the effectiveness and efficiency of the mineral fiscal regime; (iii) Analyse the tax revenues raised by the mining industry between 2011-2021; (iv) Make possible recommendations to improve the current mining tax regime. The study employed a descriptive survey design with a qualitative and quantitative approach for data collection and analysis. The main findings include: (i); Angola's political economy setting resembles that of a hegemonic government characterised by an institutionalised one-party regime whereby the implications on the mineral fiscal regime are multifaceted, affecting investment, regulation, revenue sharing, and sustainability; (ii) Both mineral royalty and corporate income tax rates, are within regional and international norms and have consistently contributed a significant share of the government's direct tax revenues over the last eleven years; (iii) Prevailing fiscal regime can be improved through a combination of tax instruments such as resource rent-tax or profit-based royalty with a basic ad valorem tax system; (iv) However, Angola’s primary challenges point to a possible absence of enforcement and compliance mechanisms for both the mining code iii and the sector fiscal framework, as well as the need to strengthen government agency capacity to oversee and gather fiscal contributions from the sector. In light of these findings, it is recommended to (i) Improve the sector's mining code and fiscal legislative framework and enforce it; (ii) Conduct a study to analyse the effects of all government taxes (direct tax, indirect tax and non-tax instruments and tax incentives) on both the industry and the government´s treasury; and (iii) Conduct further studies on the proposed optimal mineral fiscal regime. Finally, an effective, efficient, and transparent mineral fiscal system can only exist first and foremost through intentional collaboration and alignment of objectives among the sector’s stakeholders.