Dietsche - The Challenge of Mineral Wealth

Dietsche, E., et al, The Challenge of Mineral Wealth: Using Resource Endowments to Foster Sustainable Development, in Minerals Taxation Regimes, a Review of Issues and Challenges in their Design and Application: Analysis and Observations, International Council on Mining and Metals (ICMM) Report 2009


This report discusses the challenges surrounding the design of an efficient mineral tax regime and the difficulty of translating mineral revenues to socio-economic development. The report proceeds by examining existing literature on mining taxation with a note of existing gaps which include the failure of existing literatures to provide a framework for predicting fiscal policy switches and alerting market participants of changes in their political risks exposures.

Tax instruments and types of tax regimes are considered by the report with a weighted analysis of their characteristics. Of note are the industry trends in the use of tax instruments and the government challenge of designing an efficient tax regime in terms of the potential revenues and the cost of enforcement as well as the attractiveness of the tax regime to companies. The paper notes the need for tax regimes to be progressive but observes that many tax regimes in the industry are mildly regressive.

The report further examines the collection and distribution of mining revenues at the sub-national level. Country case studies are made in this regard to highlight regimes of no redistribution, fiscal decentralization and direct community contributions. The report considers company perspectives on mineral tax regimes noting in particular that stability, simplicity and predictability are the most important aspects of tax regimes for mining companies.

The report concludes with observations from all the analysis made in the report. For example, the report observes that mineral tax regimes should be neutrally and progressively designed and should focus on maximizing revenues in the long run. The report also observes that mineral tax systems in the lower-income mining countries should be designed simply so as afford easy tax administration. Subjecting mining companies to a general tax system as opposed to special arrangements and bilaterally negotiated agreements should be embraced for ease of tax administration.

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