Rethinking Tax Incentives in the Mining Sector in Africa

The report examines the prevalence and impact of mining tax incentives in Africa, concluding that they are largely ineffective at attracting foreign direct investment (FDI) and instead facilitate revenue loss and illicit financial flows. It highlights that factors such as mineral quality and political stability are more critical to investors than tax breaks. The document argues for a shift toward performance-based incentives, the adoption of the OECD/G20 global minimum tax, and regional tax harmonization to prevent a 'race to the bottom' and support the goals of the Africa Mining Vision.

• Tax incentives in the mining sector have caused significant revenue losses for African governments, often equivalent to entire national budget deficits. For instance, Sierra Leone lost USD 131 million between 2014 and 2016 due to corporate income tax (CIT) holidays for two firms, a sum equal to the country's 2024 budget deficit.
• Tax incentives are not primary drivers for mining investment; investors prioritize the location, quality, and amount of mineral resources, as well as infrastructure, skilled labor, and political stability.
• The mining sector is highly susceptible to illicit financial flows (IFFs), which reached USD 220 billion annually in Africa between 2010 and 2018. Tax incentives exacerbate this by encouraging aggressive tax avoidance, such as 'high grading' during CIT holidays or 'thin capitalization' through withholding tax relief on interest payments.
• Fiscal stabilization clauses, which are prevalent in Africa, often lock in harmful or outdated tax incentives for long periods, sometimes exceeding 30 years in countries like Guinea, Burkina Faso, Burundi, Madagascar, and Mali, thereby limiting a government's legislative power to reform its tax regime.
• Tax incentives can negatively impact local communities by reducing the revenues available for public services and creating unfair tax burdens where foreign firms pay lower effective rates than domestic companies.
• The OECD/G20 global minimum tax of 15% reduces the incentive for African countries to offer harmful tax breaks, as multinational companies would simply pay the difference to their headquarters' jurisdiction if the effective rate in the host country is too low.
• Regional tax harmonization is recommended to stop the 'race to the bottom' where countries undercut each other's tax rates. While some progress has been made through the SADC and ECOWAS, challenges remain as some countries introduce special taxes via decrees to bypass regional agreements.
• Future tax incentives should be performance-based, time-bound, and linked to specific goals such as domestic industrialization, value addition of critical minerals, or the adoption of clean energy technologies.

APA

International Institute for Sustainable Development (2025). Rethinking Tax Incentives in the Mining Sector in Africa. https://www.iisd.org/system/files/2025-06/rethinking-tax-incentives-mining-africa.pdf

Chicago

International Institute for Sustainable Development. Rethinking Tax Incentives in the Mining Sector in Africa. 2025. https://www.iisd.org/system/files/2025-06/rethinking-tax-incentives-mining-africa.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Rethinking Tax Incentives in the Mining Sector in Africa |date=2025 |url=https://www.iisd.org/system/files/2025-06/rethinking-tax-incentives-mining-africa.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2025rethinking, author = {{International Institute for Sustainable Development}}, title = {{Rethinking Tax Incentives in the Mining Sector in Africa}}, institution = {International Institute for Sustainable Development}, year = {2025}, url = {https://www.iisd.org/system/files/2025-06/rethinking-tax-incentives-mining-africa.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }