Project Case Study
Reviewing Malawi’s Mining Sector Fiscal Regime
Diversifying Malawi’s economy through an investor-friendly fiscal framework for the mining sector
Since independence in 1964, Malawi has been an agricultural country, with policies that encouraged farming. Policy direction changed in 2006, with the aim of diversifying the economic base, and mining was identified as one of the sectors with high potential. But there was a lack of mining culture, little technical capacity, and very few local mining companies.
We developed the fiscal, regulatory and audit regime for the mining sector by designing and implementing appropriate royalty and tax regulations; we designed administrative procedures and guidelines for mineral and royalty tax audits and developed manuals; and drew up institutional arrangements and skills to organise data inputs, carry out computer-based modelling, and to use and report the outputs.
During the project, ASI collaborated with the Ministry of Natural Resources, Energy and Mining (MNREM), the Malawi Revenue Authority, Ministry of Finance, Office of the Commissioner of Mines and Minerals, and Department of Mines to improve the fiscal regime and build the capacity of officers from the mineral revenue collecting institutions to verify, conduct and plan mineral revenue forecasts and/or mineral product sales.
The improved fiscal regime for Malawi will ensure that investors will have confidence in the integrity and operation of tax and regulation. When the new mining bill is implemented, the mining sector will have an integrated code covering both fiscal and non-fiscal matters. ASI’s work focused on twin areas of growth and governance for the mining sector in Malawi.
The ASI team developed a comprehensive model for forecasting mineral revenue and royalties for each individual mine, and to assess the impact on government revenues and investor returns of different tax regimes or concessions. The model is an indispensable tool to aid the government in negotiations with potential investors and allows comparison of different fiscal regimes in terms of both project viability and sharing of risk between the government and investors.
- Assisted the Malawi Government to establish a coherent, standardised and globally competitive fiscal regime for the mining sector with design and implementation of royalty and tax regulations
- Taught officers from the revenue collecting institutions to verify volumes and value of mineral product sales, classify expenditures that are deductible for tax purposes and technical knowledge of accepted international tax principles on matters such as thin capitalization and transfer pricing in the mining sector
- Trained officers in the mineral revenue collecting institutions in mineral revenue forecasting