RECONCILING MINERAL ROYALTY TAX REVENUE AND INWARD FOREIGN DIRECT INVESTMENT

Zambia’s mining sector is crucial to its economy, significantly contributing to national revenue and foreign direct investment (FDI). However, the country has struggled to balance mineral royalty tax (MRT) revenue generation with attracting and retaining FDI. This study develops the Taxation and Investment Reconciliation Theory (TIRT) as a strategic framework for balancing taxation policies and investment incentives in resource-rich nations. Using a mixed-methods approach, integrating econometric analysis and qualitative insights from policymakers, investors, and mining firms, the research examines the impact of MRT regimes on FDI inflows in Zambia. The study employs a convergent parallel design and applies an Autoregressive Distributed Lag (ARDL) model to time series data to analyse how changes in royalty tax structures influence investment decisions and government revenue. Additionally, it evaluates policy inconsistencies and investor perceptions of Zambia’s fiscal framework. A key outcome is the TIRT model, which incorporates international best practices and empirical data from other resource-rich economies to establish a sustainable taxation-investment balance. Findings highlight that predictable, stable, and flexible tax policies are essential for aligning government revenue objectives with investor confidence. The study emphasises the importance of political stability and stakeholder interests in achieving a sustainable mining sector. It concludes by recommending a policy framework that aligns Zambia’s MRT with long-term FDI growth, ensuring a robust and sustainable mining sector. This research contributes to the discourse on mineral taxation in developing economies, offering a practical model for optimizing both revenue generation and foreign investment.