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61. A strategy to future-proof Zambia’s mining industry

Author:
Vincent Obisie-Orlu
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
Good Governance Africa (GGA)
Abstract:
Zambia is in an opportune position to benefit from the growing demand for copper to support the global energy transition. Policymakers in President Hakainde Hichilema’s administration have an opportunity to build a resilient and high-performance Zambian economy to bring a true New Dawn. To realise this vision, Zambia must address key economic challenges such as the legacy effects of the previous instability of the mining regulatory system. Volatile changes have plagued the country until recently, with past governments changing mining taxes in response to the copper price. Resultantly, investment growth has diminished and the multiplier effect that would otherwise have been associated with mining has been foregone. Poor macroeconomic governance and mining growth retardation have also pushed Zambia’s national debt to unsustainable levels, as exports have been insufficient to fund debt repayment. The country is now seeking debt relief from its external creditors and has struck a deal with the International Monetary Fund. In this first of a two-part policy briefing series, we examine the key economic challenges associated with mining governance reform and provide recommendations that will help develop a resilient mining tax regime and a more streamlined regulatory environment. The second briefing will address the debt challenge. Considering the growing demand for copper to meet the global net-zero goal, and an impending global supply crunch, more copper will need to be produced and Zambia is in a prime position to do so. At the same time, Zambia has declining copper ore grades. Our primary recommendation, therefore, is that a profit-based Mineral Royalty Tax (MRT) framework be strongly considered. This will enable investment in the necessary capital and infrastructure needed to increase output and promote exploration. Though profit-based MRTs can be exploited by mining companies making claims of increased capital investment to increase outputs, when combined with the implementation of the Extractive Industries Transparency Initiative (EITI)’s reporting standards, the risk of exploitation is reduced.
Topic:
Natural Resources, Economy, Tax Systems, Mining, and Industry
Political Geography:
Africa and Zambia

62. Footing the bill? Less legitimacy, more avoidance mark African views on taxation

Author:
Thomas Isbell
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
Afrobarometer
Abstract:
Taxation is a key fiscal tool for domestic resource mobilization. In many African countries, however, weak tax-administration systems limit the ways in which governments can finance their development agendas and provide essential services such as health care, education, and infrastructure (Drummond, Daal, Srivastava, & Oliveira, 2012). The importance of raising resources through taxation has been heightened by the COVID-19 pandemic. Governments globally have confronted a sudden drop in tax revenue as many economic sectors have slowed amid lockdowns. Especially in developing countries, this shock has significantly curtailed governments’ ability to fund access to vital health, financial, and other services and assistance to those most affected by the pandemic (Gaspar, Hanif, Pazarbasioglu, & Saint-Amans, 2020). The reduction in tax revenue during the pandemic is likely to compound itself over time and limit how quickly developing economies can bounce back as governments lack the fiscal resources to stimulate growth. Even without a pandemic, tax revenues are relatively low across Africa. In 2019, 30 African countries averaged tax revenues totaling 16.6% of gross domestic product – half the 33.8% collected by member countries of the Organisation for Economic Co-operation and Development (OECD/AUC/ATAF, 2021). In addition to capacity limitations of government tax agencies, low tax revenues can be related to macroeconomic factors such as large agricultural and informal sectors, which are typically hard to tax (Di John, 2006; Mansour & Keen, 2009; Coulibaly & Gandhi, 2018; Moore, Prichard, & Fjeldstad, 2018). One current debate concerns how to tax highly digitalized businesses – which operate in African countries without necessarily having an easily taxable physical presence – in a way that is fair and doesn’t impede the growth of start-up companies (African Tax Administration Forum, 2020). But low tax revenues can also reflect micro-level factors such as citizens’ limited willingness to pay taxes (“tax morale”), a lack of knowledge about what they owe and what their taxes are used for, and their perceptions of corruption in the tax administration (OECD, 2019). If citizens regard paying taxes as a fiscal exchange or contractual relationship (Moore, 2004), these factors can affect the perceived legitimacy of taxation as a whole (D’Arcy, 2011). Beyond short- and medium-term fiscal problems, this can also have a more fundamental impact on the legitimacy of governments and political systems. The ability to raise revenue through taxes is an important marker of state capacity and political legitimacy (Brautigam, Fjeldstad, & Moore, 2008), and may contribute to government responsiveness and accountability as taxpayers demand a return on their taxes (Moore et al., 2018). How do Africans see taxation? Afrobarometer survey data collected in 34 African countries in 2019/2021 show that a majority of Africans endorse their government’s right to collect taxes. But popular support for taxation has weakened over the past decade while perceptions that people often avoid paying their taxes have increased sharply. Moreover, many Africans question the fairness of their country’s tax burden, and only half think their government is using tax revenue for the well-being of its citizens. While a majority would pay higher taxes to support young people and national development, most say they find it difficult to get information about tax requirements and uses, and many see tax officials as corrupt and untrustworthy. Such perceptions may play a role in how willingly citizens support – and comply with – their government’s tax administration.
Topic:
Political stability, Tax Systems, Legitimacy, and State Funding
Political Geography:
Africa

63. ACTUAL CHALLENGE IN INTERNATIONAL CORPORATE TAXATION: SHIFTING THE OBLIGATION OF CONDUCT INTO OBLIGATION OF RESULT

Author:
Mihaela Tofan
Publication Date:
12-2022
Content Type:
Journal Article
Journal:
Journal of Liberty and International Affairs
Institution:
Institute for Research and European Studies (IRES)
Abstract:
The research answered whether cooperation in ruling corporate taxation, a traditional obligation of conduct of sovereign states, was undergoing profound transformation into the obligation of result. The analyzed topic was not whether the tax authorities want or should cooperate (which is answered per se), but rather how to appropriately respond to the international taxation requirements for strengthening the multilateral agreements. Tax authorities worldwide have expressed concerns about identifying efficient regulation, and the development of multilateral agreements to combat tax evasion was under long and often unproductive negotiation. The empirical analyses of relevant literature and jurisprudence helped formulate an opinion on the regulation’s efficiency in strengthening multilateral taxation. The need to change the nature of the state’s obligation to negotiate fiscal regulation was not mentioned explicitly in hard law. Still, it was indirectly supported by soft law instruments, such as state representatives’ continuous yet divergent dialogue and the approaches presented in the international courts’ jurisprudence. The consistent influence on the obligation to support developments in international law in corporate taxation was justified, given the limit when considering its conduct nature, compared to potential benefits generated by the obligation of result.
Topic:
Sovereignty, Treaties and Agreements, and Tax Systems
Political Geography:
Global Focus

64. Does ethnic heterogeneity decrease workers’ effort in the presence of income redistribution? An experimental analysis

Author:
Christoph Schütt, David Pipke, Lena Detlefsen, and Gianluca Grimalda
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Ethnic discrimination is ubiquitous, and it has been shown to exert adverse effects on income redistribution. The reason is that a country’s ethnic majority, if richer than the average, may be unwilling to transfer resources to the country’s ethnic minorities if poorer than the average. A yet untested mechanism is that a country’s ethnic majority may reduce their work effort knowing that their income will finance redistribution to ethnic minorities. We test for this mechanism experimentally in triadic interactions. A German citizen acting as a worker is randomly matched with a recipient who can be another German, an economic migrant, or an asylum seeker in Germany. Workers know that another German citizen may transfer part of their earnings to the recipient. The recipient does not exert any work effort. Even if the recipient’s identity does not affect effort in the aggregate, social identity strongly moderates this relationship. Participants with a strong German identity, i.e., who report feeling close to other Germans, exert significantly less effort than other participants if the recipient is an asylum seeker. They also exert more effort when matched with a German recipient than an asylum seeker, while participants with a less strong German identity do the opposite. Moreover, participants with a strong German identity exert slightly more effort when matched with economic migrants than with asylum seekers, while others tend to do the opposite, albeit statistically insignificantly. Workers’ beliefs over the third party’s redistribution rate do not mediate such results and are generally inaccurate.
Topic:
Economics, Discrimination, Tax Systems, Labor Market, Redistribution, and Welfare State
Political Geography:
Global Focus

65. Measuring Extractives Dependency: Why it Matters and New Approaches

Author:
William Davis
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
When countries depend too heavily on extractive industries (extraction of nonrenewable natural resources) it can pose problems for their economies. These include: The volatility of natural resource commodity prices, which can cause shocks that are difficult for the country to manage The exhaustibility of natural resources and the challenges of replacing them as a source of income when they run out The political economy of governments relying on natural resources, which seems to make governments less effective (e.g., if they rely on resource wealth to fund themselves rather than developing other sectors of the economy) To address resource dependency, we need to be able to measure it. With this in mind, NRGI has produced a new dataset that builds on existing literature to provide a broad range of indicators of dependency on the extractive industries. This dataset is primarily for internal use by NRGI colleagues, but is also freely available to interested researchers. The aim of this dataset is to support a more multidimensional approach to understanding resource dependency, its causes and consequences. The related briefing explains the rationale behind the dataset and its various indicators, and some includes some initial insights based on analysis of the data.
Topic:
Natural Resources, Tax Systems, Data, Revenue Management, and Dependency
Political Geography:
Global Focus

66. The Economic Impact of Tax Changes, 1920–1939

Author:
Alan Reynolds
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Estimates of the elasticity of taxable income (ETI) investigate how high‐​income taxpayers faced with changes in marginal tax rates respond in ways that reduce expected revenue from higher tax rates, or raise more than expected from lower tax rates. Diamond and Saez (2011) pioneered the use of a statistical formula, which Saez developed, to convert an ETI estimate into a revenue‐​maximizing (“socially optimal”) top tax rate. For the United States, they found that the optimal top rate was about 73 percent when combining the marginal tax rates on income, payrolls, and sales at the federal, state, and local levels. A related paper by Piketty, Saez, and Stantcheva (2014) concluded that, at the highest income levels, the ETI was so small that comparable top tax rates as high as 83 percent could maximize short‐​term revenues, supposedly without suppressing long‐​term economic growth. Such studies could be viewed as part of a larger effort to minimize any efficiency costs of distortive taxation while maximizing assumed revenue gains and redistributive benefits.
Topic:
Economics, History, Tax Systems, and High-Income People
Political Geography:
North America, Global Focus, and United States of America

67. Volume 71 Issue 1

Author:
Gökhan Karabulut
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
Istanbul Journal of Economics
Institution:
Istanbul University Faculty of Economics
Abstract:
Istanbul Journal of Economics-İstanbul İktisat Dergisi is an open access, peer-reviewed, scholarly journal published two times a year in June and December. It has been an official publication of Istanbul University Faculty of Economics since 1939. The manuscripts submitted for publication in the journal must be scientific and original work in Turkish or English. Being one of the earliest peer-reviewed academic journals in Turkey in the area of economics, Istanbul Journal of Economics-İstanbul İktisat Dergisi aims to provide a forum for exploring issues in basicly economics and publish both disciplinary and multidisciplinary articles. Economics is the main scope of the journal. However, multidisciplinary and comparative approaches are encouraged as well and articles from various social science areas such as sociology of economics, history, social policy, international relations, financial studies are welcomed in this regard. The target group of the journal consists of academicians, researchers, professionals, students, related professional and academic bodies and institutions.
Topic:
NATO, Income Inequality, Economic Growth, Tax Systems, Cryptocurrencies, COVID-19, and OECD
Political Geography:
Turkey and Global Focus

68. Supporting a Public Purpose in Research & Development: The Role of Tax Credits

Author:
Jake Taylor
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Belfer Center for Science and International Affairs, Harvard University
Abstract:
Tax credits for research and development are a means of incentivizing the private sector to invest their own resources on challenging problems. However, in practice, the fungibility of tax credits and other monetary elements can lead to misalignment between the public good represented by R&D and the actions of the company. In this policy brief, we consider the existing mechanism of tax credits. We see how they can encourage private sector risk-taking to enable research and development (R&D) outcomes. However, our goal is to go beyond economic growth benefits, and to include the less tangible considerations of public good and public purpose in the research and development domain. We then suggest an expansion of tax credits focused on supporting the researchers involved in the R&D and encouraging innovation in both large organizations and in startups and small businesses. This approach builds upon the existing framework of agency-led, mission-defined support of the private sector used by the U.S. government, as occurs in other programs such as America’s Seed Fund (sometimes known by its acronyms, SBIR and STTR). The integration of specific agency- and mission-focused elements to the credit system ensures that these additive credits support research and researchers whose R&D outcomes will improve the health, prosperity, and opportunity for the U.S. as a whole. Specific means of implementing this public-purpose R&D credit system under existing authorities within the executive branch are suggested, along with the public-facing mechanisms for creating and maintaining the evaluation approach of what constitutes “public purpose” as science and society progress.
Topic:
Economics, Science and Technology, International Affairs, Tax Systems, and Tax Credits
Political Geography:
Global Focus and United States of America

69. Tax Disobedience in Côte d’Ivoire

Author:
Joseph Kone
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Afrobarometer
Abstract:
Since the end of its civil war in 2011 and the installation of President Alassane Dramane Ouattara, Côte d’Ivoire has seen one of the highest rates of economic growth in Africa, sometimes referred to as a new “Ivoirian miracle” (Dionne & Bamba, 2017). As the economy has grown and the state has rebuilt capacity, tax revenues have increased steadily, growing by 37% between 2013 and 2017. In many African states, «import and export taxes constitute the backbone of tax regimes. Revenues are supplemented by indirect taxes, in the form of excise and sales taxes» (D’Arcy, 2011). In the case of Côte d’Ivoire, the government relies heavily on taxes on the export of cocoa and other agricultural products, in addition to taxes on industrial and commercial profits, income, telecommunications, petroleum products, imports, as well as a value-added tax (Ministère du Budget et du Portefeuille de l’Etat, 2020). Even in states with high levels of coercive capacity, citizens’ willingness to pay taxes is a significant determinant of revenues collected. This willingness becomes even more important in contexts of relatively low state capacity, such as has existed in post-conflict Côte d’Ivoire. In fact, a substantial – and growing – proportion of Ivoirians question the state’s right to collect taxes, a fact that could present a significant challenge to the government’s ability to collect revenues in order to rebuild essential state services and avoid excessive debt. This paper focuses on a particular form of tax non-compliance: tax disobedience, or individuals’ refusal to pay taxes and fees as a form of protest. Specifically, it examines several individual-level factors that might be associated with tax disobedience, including lack of a cash income, assessments of public services and elected representatives, accessibility of information, and effective connections with the Ivoirian nation. Our analyses of data from the Afrobarometer Round 7 survey (2017) suggest that some of the conventional wisdom on tax compliance is not supported in the case of tax disobedience in Côte d’Ivoire. While we find, as expected, that individuals who think state performance is improving in delivering key services are less likely to express a willingness to engage in tax disobedience, we find no such link with lived poverty; poorer Ivoirians are no more or less likely than their wealthier counterparts to endorse tax disobedience. Surprisingly, assessments of elected representatives and of corruption in the tax system are not significantly associated with tax disobedience, either. Perceived access to government information and identification with the Ivoirian nation do show associations with tax disobedience, but these links run counter to our expectations: Citizens who think they could access information held by public bodies are significantly more likely to say they engaged or would engage in tax disobedience, as are people who identify more closely with the nation than with their ethnic group. These analyses suggest the need for more research on a crucial question facing African states: Who pays taxes, and who doesn’t?
Topic:
Civil Society, Tax Systems, Revenue Management, and Tax Evasion
Political Geography:
Africa and Côte d'Ivoire

70. Solidarity Taxes in the Context of Economic Recovery Following the COVID-19 Pandemic

Author:
Attiya Waris
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Center on International Cooperation (CIC)
Abstract:
There are multiple examples of solidarity taxes imposed across country contexts over previous decades. The solidarity taxes that were levied were done to mitigate effects of a crisis such as a pandemic, as well as rebuilding of nations that had been affected by world wars (examples include Zimbabwe and Germany). Considering the renewed interest in solidarity taxes in the wake of COVID-19, author Attiya Waris reviews the history of solidarity taxes, and discusses key lessons from the past, in addition to drawing these lessons and findings into policy reccomendations moving forward.
Topic:
Tax Systems, Pandemic, COVID-19, and Economic Recovery
Political Geography:
Germany, Zimbabwe, and Global Focus