‘Fiscal Linkages’ as a critical area for research
We understand ‘fiscal linkages’ in the mining sector as referring to the structure, dynamics and impact of various forms of taxation on revenue generation, investment incentives and business practices. By this broad definition, linkages also encompass questions of how governments’ taxation and broader revenue strategies affect the development of the minerals and mining sector, and its role in the broader national economy. An important element in the study of fiscal linkages is the mining fiscal regime (MFR), the array of taxes, regulations, administrative authorities and related practices which pertain to mining and minerals processing in a country. At the same time, other laws, regulations and financial instruments beyond taxes also feature significantly in the state’s management of the sector. Such measures include, for example, regulations involving foreign and domestic investment, and ownership rights; employment, skills transfer and mining community participation in mining production; local content including local procurement, and forward and backward linkages from mining to other local economic sectors.
In our Working Group, the focus of attention falls on the narrower scope of fiscal linkages involving the MFR, the political and economic dynamics underlying its evolution in recent years in the case study countries, and the impact of state capacity and policy innovations on strengthening mining’s revenue and developmental outcomes. Our preliminary research notes tensions running through policy debates over MFR reforms, in which strategic trade-offs over development visions are being intensely contested by a variety of stakeholders. Conflict has emerged over, for example; whether an MFR should be broadly revenue-boosting or development-fostering in approach; whether revenue distribution should prioritize local or national redistribution; and whether foreign investment or domestic ownership should be incentivized as a means of sector and revenue growth. In each area of policy contestation, the strategic trade-offs implied by different regulatory options have occupied the centre of policy debates.
A second important issue for our understanding of the dynamics of MFR reform concerns state institutional capacity. In addition to the elaboration and reform of tax schedules, the state’s capacity to manage, strengthen and tailor tax administration to address evolving objectives and production scenarios, was identified as critical in the shaping of MFR debates and outcomes. While the rhetorical and regulatory thrust of recent resource nationalist-inspired policy interventions have at times been cast as radical or transformative, our initial assessments raise questions about serious impediments to policy implementation posed by the state’s internal failings. These state weaknesses have multiple origins, including low levels of functional technocratic capacity, institutional incoherence (if not outright conflict), elite interference and ‘state capture’, and the deep influence of external interests including donors. The outcomes for policy innovation aimed at strengthening fiscal linkages in the mining sector have been sharply negative. They involve persistent weaknesses in the transparency, efficiency and scope of tax collection; the uneven management of minerals revenues and exports; and the often poor coordination of different levels of state tax administration. These weaknesses have typically been compounded by the relative power and capacity of mining capital, reflected in companies’ recent history of low tax compliance, enthusiasm for illicit foreign transfers, and recurring demands for deep tax concessions. The viability of resource nationalist strategies aimed at improving domestic revenue mobilization, greater local participation and strengthened developmental spill-overs from mining, rests in part on the capacity of the state to conceptualize and oversee the implementation of strategic reforms in national MFRs.
Recognizing the need to prioritize knowledge and research gaps with a direct bearing on current scholarly and policy debates in the region, the Fiscal Linkages Working Group has identified four priority areas and themes for current research in the project:
- Baseline Survey of MFRs in Southern Africa in the 2000s
- Political Dynamics of MFR Reforms
- State Institutional Capacity and Constraints
- Fiscal Decentralization, Fiscal Transparency and Community Participation