How Smart Tax Policy Could Help Stabilize Lithium Supply Chains

Lithium—concentrated in a few countries—is considered a strategic and critical raw material. It’s essential for electric vehicle batteries, renewable energy storage, and tech applications. Demand is surging.

A harmonized approach to lithium taxation could unlock global stability, accelerate decarbonization, and ensure a more just distribution of mineral value.

Lithium may be subject to export controls, mining royalties, or tax incentives, depending on jurisdictional approach. Royalty tax and export tax or duty are the most frequent tax instruments.

Corporate income tax preferential rates, and incentives such as refundable tax offset aim to stimulate investors and are becoming common. Windfall profit tax is adopted by countries seeking to benefit from any market price surge.

Because of the concerns around waste, water use and land degradation caused by lithium production, environmental levies are also on the rise.

Impact of Taxation

How lithium taxation can amplify the very factors that make it critical can be explained economically. Higher royalties or export duties or windfall taxes are likely to increase production costs and may discourage new mining exploration or expansion, particularly in countries with complex licensing or environmental, social, and governance scrutiny.

Higher upstream lithium taxation will cascade into battery costs, adversely affecting electric vehicles’ affordability and grid storage economics. Tax rate increases may disproportionately affect low-grade lithium sources, which are crucial for diversifying lithium supply, but higher taxes may render them uneconomical.

The lithium market is at risk of becoming technologically limited and locked. As a result, countries with lighter tax regimes (such as Zimbabwe) may attract more investment, while high-tax jurisdictions (such as Chile) may risk under-investment, further accelerating the concentration and criticality of lithium.

Taxation also can trigger resource nationalism, as shown with the recently proposed lithium “OPEC” by Chile, Bolivia and Argentina.

Different Fiscal Outcomes

Tax trends around lithium are intensifying globally.

Chile seeks strategic control of lithium and has set its mining royalty on a sliding scale from 6.8% to 40% of lithium export price. Chile’s policy focuses on maximizing tax revenues from lithium, considered as a national asset.

China, a country familiar with export control, has reduced its export tax rebates from 13% to 9% for lithium batteries. China is dealing with an overcapacity but is committed to promote domestic consumption and wants to reduce trade tension.

Australia exports 90% of its lithium to China for refining and has no export tax. The royalty rate in Western Australia, where most of the country’s lithium is mined, is 5% of the gross value of lithium concentrate. Australia is shifting its focus onto value-added processing and has introduced a 10% refundable tax offset for eligible processing costs occurring from 2027 to 2040.

These trends don’t just affect fiscal outcomes, they impact the global supply chain. Changes in the government fiscal take put countries on different paths:

• Higher royalties in Chile may deter new investments and lock in existing supply sources. With fewer entrants in its lithium fields or under-investment in refining or in marginal deposits, Chile’s vulnerability in the global lithium supply chain could increase.
• Because China dominates refining, any increase in its taxation regime amplifies the impact for the global supply chain.
• Australia can help de-risk the global supply chain with its stable fiscal regime and transparent governance. Its new tax incentives and alignment with US industrial policy can accelerate its shift toward onshore value addition.

US and Africa

In the US, California is emerging as the center of lithium potential—more precisely, near the Salton Sea in Imperial County. It has adopted a volume-based extraction tax, tiered from $400 to $800 per metric ton of lithium carbonate equivalent, with the goal of funding environmental restoration and ensuring local benefits.

In Africa, Zimbabwe seeks to strongly push lithium benefits. The country already has a royalty rate of 5% and added recently an export levy of 5% along with a full ban on raw ore exports of lithium. From 2027, lithium concentrate exports will also be banned.

Ghana wants a high government take in lithium production with an ESG focus. It has set its royalty rate to 10% on gross sales revenue for its first lithium mine in Ewoyaa. The country bans raw ore exports.

These countries are facing the same challenges—growing Chinese ownership of mining, increasing prevalence of artisanal mining, and smuggling diluting fiscal control. However, they diverge on their lithium approach from a fiscal perspective, with Ghana leaning toward negotiated reforms and Zimbabwe enforcing bans and levies.

Several African nations are reinventing their taxation models for mining activities by gradually shifting focus to critical raw materials. The continent must transform its reliance on natural resources into an economic advantage.

Smart Tax Policy

Taxation, when misaligned with industrial policy, can exacerbate lithium’s criticality by inflating risk across the supply chain, from mine to market. The key to success is smart fiscal design: capturing fair revenue without deterring investment or destabilizing supply.

Countries with lithium reserves should seek a calibrated fiscal framework that balances:

• Revenue optimization with investment attraction
• Strategic autonomy with global ESG compliance
• Tax equity with technological innovation

Countries such as Ghana or Zimbabwe may be more exposed due to weak governance compared to Australia or the US, where a strong ESG framework and infrastructure helps mitigate the criticality risk.

There is a need for countries to come together, possibly under the influence of multilateral institutions, to design and implement “smart” taxation of lithium that supports both global decarbonization and sovereign economic goals.

A co-developed smart tax policy could have the following attributes:

• Variable royalty schemes linked to market prices, preventing overtaxation during volatility
• Fiscal offsets or export rebates to promote value addition such as refining and battery manufacturing
• Environmental levies tied to water use, biodiversity and community impacts to integrate sustainability
• Administrative collaboration to prevent regulatory arbitrage and foster supply diversification

If the key lithium-producing countries (Chile, China, Australia) along with the new market players (US, Ghana, Zimbabwe) were to co-develop such a smart tax policy, the global lithium supply chain could become dramatically more stable, equitable, and resilient.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Anthony Assassa is an experienced international accounting and tax adviser with over 15 years’ Africa and Asia background in mining and trade activities, with a particular focus on critical raw materials associated with an international organization.

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