Prices for minerals were a major factor in the early 20th century boom in commodities. However, mining has only made a small financial contribution to developing nations, partly because of widespread tax evasion and avoidance.
Key Points
Fewer royalties from mining
Years of carefully regulated mining demonstrate that responsible and efficient governments can extract more resources while still increasing social welfare and sustainable development.
The financial contribution of such extractive enterprises to public welfare and national development can be significantly increased by well-managed, progressive resource rent taxation.
However, mining royalty rates considerably decreased towards the turn of the 20th century, reaching a range of up to 30%. For emerging nations with abundant natural resources to advance, mineral revenue rates must be raised.
Lowering resource rents for host governments and economies has been justified by those responsible. The Extractive Industries Transparency Initiative of the World Bank allegedly aims to reduce mining-related corruption and increase mining foreign direct investment.
After Ghana, formerly known as the Gold Coast, and South Africa, which began producing gold in the late 20th century, Tanzania quickly rose to become the continent’s third-largest gold producer.
However, Tanzania, a least developed nation, pays for the government-provided infrastructure created to primarily draw international gold mining investors with low royalties and tax revenue.
Ten policy suggestions
How developing nations might gain more from their natural resources has been suggested by the African Tax Administration Forum (ATAF) and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF).
In their book, The Future of Resource Taxation: 10 Policy Ideas to Mobilize Mining Revenues, the authors examine the policy alternatives accessible to governments and provide lessons learned from various instances in which the suggested strategies have been successfully put into practice.
Minimum Government Profit Share
Royalties and corporate income taxes are two ways that many governments are paid for mineral resource rentals. Even when prices fall below thresholds, some people insist on a minimum level of government revenue. The book evaluates whether such ‘profit sharing’—in Tanzania, the Philippines, and Ecuador—improved upon the pre-shared situation.
Production-Share Agreements
Oil and gas profits are a major source of income for many nations. Some people have wondered if other minerals could benefit from similar agreements. A chapter examines problems that can occur when carrying out such contracts.
State Equity Involvement
Governments can profit from their investments by receiving dividends and other rewards when they participate in state equity. The volume provides helpful advice in this area.
State-Owned Businesses in the Private Sector
To maximize the economic benefits to the country, nationalist ambitions for mineral resource control may encompass wholly state-owned mining operations. One chapter offers suggestions for how such businesses should be founded, developed, and reformed to prosper.
Fluctuating royalties
Compared to profit- or cash-flow-based taxes, variable royalty rates are simpler to enforce. The book provides useful advice based on an examination of variable royalties in 15 nations.
Similar-Party Sales
Latin American nations with abundant natural resources have been using commodity pricing from an appropriate exchange, such the London Metals Exchange, to cut down on tax evasion involving mineral transactions. Such reference prices are less susceptible to tax evasion in related-party mineral sales.
Mechanisms for Border Adjustment and Carbon Pricing
The carbon border adjustment mechanism (CBAM) levies import taxes for alleged greenhouse gas emissions at rates equivalent to those imposed on items made in the EU under its Emissions Trading Scheme. The report examines whether emerging nations that export minerals should imitate CBAM and the possible effects on such nations.
Community Gains from a Turnover Tax on Development
Specific demands from nations with abundant natural resources are met by some mining tax tools. A “development turnover tax” that requires private mining corporations to make investments in shared public infrastructure is covered in one chapter. A government-run mining development fund might also be funded in a similar manner by a development turnover tax that the national revenue authority could collect.
Competitive Mining Rights Bidding
Competitive bidding can effectively distribute mineral resource extraction licenses to private enterprises under the right circumstances. The research explains how nations might enhance revenue by using competitive bidding to assign mining licenses.
Improved Quarrying Monitoring
The majority of resource-rich nations tend to prioritize precious minerals above quarried industrial minerals when it comes to regulatory monitoring and mining income mobilization. Remote monitoring can aid tax authorities in determining the output and sales volumes from quarries.
Implementation is important
Mining firms typically meet local resistance when they attempt to get mining rights, land, water, and other resources using their wealth, influence, and force. However, more effective international, national, and municipal regulation can lessen these negative effects and associated disputes.
While some of the volume’s recommendations call for gradual reforms, others are more drastic. However, each one must be carefully considered by the government to see whether it is appropriate. Of course, a number of factors will also influence the likelihood of success.
For the recommended reforms to be put into effect, governments need both human and financial resources. They ought to stay away from inefficient and unproductive tax incentives as well as enforcement tools that subvert legality and government regulations.
To increase mineral resource rent collection, developing nations with abundant natural resources frequently require assistance from international organizations, bilateral partners, and other development partners.
The general decline in mining revenue has been mostly attributed to unsuitable laws, subpar investment contracts, too generous tax incentives, and tax evasion and avoidance. Some nations also lack the necessary skills, knowledge, and resources for a successful, corrupt-free implementation of mining taxes.
Rivalries are getting harsher as there is more rivalry for mineral resources. Even when conditions change, new alliances and conflicts develop as demand increases.
Developing countries can better advance their national interests by cooperating and being non-aligned than by competing with other mineral-producing countries in the face of such uncertainty in a rapidly shifting international environment.
IPS UN Bureau
