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Taxation of mining and petroleum industries

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Taxation of mining and petroleum industries

    Taxation of mining and petroleum

    Selected references and resources

    Hossain, S.M. (2003). ‘Taxation and pricing of petroleum products in developing countries: A framework for analysis with application to Nigeria’, International Monetary Fund Working

    Paper WP/03/42.

    (Available online: http://www.imf.org/external/pubs/ft/wp/2003/wp0342.pdf)

    Using the modern theory of public economics as the point of departure, this paper outlines a basic principle for setting taxes and/or prices of commodities based on two key criteria, efficiency and equity. The paper shows that for petroleum products, the basic principle needs modification in the presence of various externalities and market imperfections in a setting where the instruments to address the externalities and imperfections are limited. Drawing from theoretical and empirical literature, the paper provides an operational framework and then illustrates how, for a country like Nigeria, the relevant taxes/subsidies to correct the externalities and to address equity and revenue considerations can be measured with a view to setting prices of petroleum products. However, the paper refrains from making any specific suggestion for policy reform in Nigeria. The framework outlined in the paper can be applied to the analysis of petroleum product taxes and prices in other developing countries.

PriceWaterhouseCoopers (2005). ‘Explore mining tax in South Africa’, PWC Newsletter.

    (Available online: http://www.pwc.com/za/ENG/ins-sol/publ/tax/pwc_ExploreMar05.pdf)

    The aim of this periodic newsletter is to highlight current developments in legislation related to the mining industry and to debate their impact on South African mines.

Davis, J.M., Ossowski, R, and Fedelino, A. (Eds) (2003). ‘Fiscal Policy Formulation and

    Implementation in Oil-Producing Countries’, International Monetary Fund.

    (Introduction available online: http://www.imf.org/external/pubs/nft/2003/fispol/index.htm#ch1)

    This volume brings together papers that deal with a wide range of macroeconomic and fiscal issues in oil-producing countries, and aims at providing policy recommendations drawing on theory and country experience. The scope of the essays reflects the significant operational involvement of the IMF with oil producers, particularly in terms of surveillance, program work, and technical assistance. This work has highlighted the difficult challenges that confront policymakers in these countries, and the possibilities in several areas for improved practice.

Otto, J.M. (2000). ‘Mining taxation in developing countries’, Study Paper prepared for UNCTAD.

    (Available online:

    http://72.14.207.104/search?q=cache:V0f5EKz7luEJ:r0.unctad.org/infocomm/diversification/cape/word/otto.doc+%22taxation+of+mining%22&hl=en)

    This paper presents information on the taxation of mines with a special emphasis on taxation policy in developing economies. It discusses the objectives of mining taxation and how tradeoffs may be made between different objectives such as the desire to attract investment, maximize government revenues, and enhance the developmental impact of mining. The major types of mining taxes are described from a policy perspective, and the timing of taxes and tax incentives is analyzed to illustrate their effect on government revenues and return on investment. Differences in tax treatment between foreign and domestic mining enterprises and between large and small-scale mining are examined. Major tax trends are identified, as is the relationship between taxes on mining and taxes on other economic sectors. The study draws, in part, upon a more extensive study undertaken by the author that was distributed globally by UNCTAD in 2000.

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Katz, M., Bartsch, U., Malothra, H. and Cuc, M. (2004). ‘Lifting the oil curse: improving

    petroleum revenue management in sub-saharan Africa’, International Monetary Fund.

    (Introduction available online: http://www.imf.org/external/pubs/nft/2004/loc/index.htm#intro)

    The paper discusses macroeconomic and oil sector policy, and governance issues in the six oil-producing countries--Angola, Cameroon, the Republic of Congo, Equatorial Guinea, Gabon, and Nigeria-as well as the newcomer Chad, which had started production by mid-2003. The main objectives are to (1) give an overview of the general policy issues in oil-producing countries, (2) describe actual practice in the countries, and (3) discuss African policymakers' perspectives and an agenda for further discussions.

Baunsgaard, T. (2001). ‘A primer on mineral taxation’, International Monetary Fund Working

    Paper WP/01/139.

    (Available online: http://www.imf.org/external/pubs/ft/wp/2001/wp01139.pdf)

    This paper discusses options available to tax mineral extraction projects particularly in developing countries. A desirable government share of the economic rent generated from mineral extraction can be achieved through different tax and non-tax instruments. This gives some room to design a fiscal regime that will be attractive to investors while providing the government with a fair share of the economic rent. However, achieving this will require careful assessment of the appropriate distribution of risk and reward between the investor and the government. Moreover, there is growing pressure on countries to provide increasingly lenient fiscal terms so as to remain competitive as global investment destinations.

Ahmad, E. and Mottu, E.A. (2002). ‘Oil revenue assignments: country experiences and issues’,

    IMF Working Paper WP/02/203.

    (Available online: http://www.imf.org/external/pubs/ft/wp/2002/wp02203.pdf)

    Based on country experiences, the paper assesses policy options to assign oil revenues to subnational governments (SNGs). The literature recommends that oil revenues be centralized. Given political economy considerations, this paper suggests that a possible alternative is to assign stable oil-tax bases to oil-producing SNGs, supplementing these with predictable transfers from the center. Although commonly used, oil revenue-sharing arrangements are the least preferable solution, as they complicate macroeconomic management and do not provide stable financing. Revenue sharing also does not diffuse separatist tendencies, since oil-producing SNGs would still be better off by keeping their oil revenues in full.

Sala-i-Martin, X. and Subramanian, A. (2003). ‘Addressing the natural resource curse: an

    illustration from Nigeria’, International Monetary Fund Working Paper WP/03/139.

    (Available online: http://www.imf.org/external/pubs/ft/wp/2003/wp03139.pdf)

    Some natural resources-oil and minerals in particular-exert a negative and nonlinear impact on growth via their deleterious impact on institutional quality. We show this result to be very robust. The Nigerian experience provides telling confirmation of this aspect of natural resources. Waste and poor institutional quality stemming from oil appear to have been primarily responsible for Nigeria's poor long-run economic performance. We propose a solution for addressing this resource curse which involves directly distributing the oil revenues to the public. Even with all the difficulties that will no doubt plague its actual implementation, our proposal will, at the least, be vastly superior to the status quo. At best, however, it could fundamentally improve the quality of public institutions and, as a result, durably raise long-run growth performance.

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Sunley, E.M., Baunsgaard, T. and Simard, D. (2002). ‘Revenue from the oil and gas sector:

    issues and country experience’, Background Paper prepared for the IMF conference on fiscal

    policy formulation and implementation in oil producing countries, June 5-6, 2002. Provides an overview of the fiscal instruments available to policymakers to design a fiscal regime for the oil sector. Also provides some examples and case-studies of country experience.

Gupta, S. and Mahler, W. (1994). ‘Taxation of petroleum products: theory and empirical

    evidence, IMF Working Paper WP/94/32.

Muzondo, T.R. (1992). ‘Alternative forms of mineral taxation, market failure and the

    environment’, IMF Working Paper WP/92/49.

Nellor, D. and Sunley, E.M. (1994). ‘The fiscal regimes for natural resource producing

    developing countries’, IMF Papers on Policy Analysis and Assessment 94/24.

The World Bank Group website

    The oil, gas, mining, and chemicals sector is a key focus for The World Bank Group. Their goal here is to provide advice to governments on policies that are designed to create a positive investment climate and achieve other important policy objectives in the sector including environmental and social goals. Many publications on the topic of mining (too many to list here) are available on the website. See:

    http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTOGMC/0,,menuPK:336936~pagePK:149018~piPK:149093~theSitePK:336930,00.html

Ernst and Young Energy, Chemicals and Utilities website

    Ernst & Young provides assurance, tax, and transaction advisory services for many of the world’s leading energy, chemicals, and utilities companies.

    See: http://www.ey.com/global/content.nsf/International/Industries_-_ECU

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