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A real options based framework for assessing the international attractiveness of mining taxation regimes

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  • Banda, Webby

Abstract

In today's globalized world, mining capital is highly mobile. Therefore, countries are in a pressing need to design competitive mining tax codes to attract this capital. A country that has a higher tax rate drives mining investment elsewhere. When this happens, mineral deposits will never be discovered and mines will never be opened. In this paper, a real options based framework for assessing the international attractiveness of mining taxation regimes was developed. The framework integrates three financial metrics, namely, the average effective tax rate, marginal effective tax rate, and the real option to abandon. To illustrate its practical application, the framework was applied to assess the international attractiveness of Zambia's copper taxation regime. The assessment was based on two fiscal instruments, namely, mineral royalty and corporate income tax. Additionally, copper taxation regimes of four countries in the Southern African Development Community (SADC) and three countries outside the borders of Africa were selected for the analysis. These countries are Australia, Chile, Peru, the Democratic Republic of the Congo, Angola, South Africa, and Botswana. It was drawn from the results that Zambia's copper taxation regime yielding an index of 0.65 was the least attractive.

Suggested Citation

  • Banda, Webby, 2021. "A real options based framework for assessing the international attractiveness of mining taxation regimes," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721004232
    DOI: 10.1016/j.resourpol.2021.102414
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    References listed on IDEAS

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    1. Olle Ostensson & Bob Parsons & Samantha Dodd, 2014. "Comparative Study of the Mining Tax Regime for Mineral Exploitation in Kazakhstan," World Bank Publications - Reports 21587, The World Bank Group.
    2. Webby Banda, 2019. "Economic analysis of Zambia’s ad valorem copper mineral royalty reforms using an analytic hierarchy process framework," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 32(1), pages 1-18, April.
    3. Banda, Webby & Kabwe, Eugie, 2019. "An integrated multiple criteria decision making framework for application in the evaluation of mineral taxation regimes," Resources Policy, Elsevier, vol. 62(C), pages 635-650.
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