Mining Specifics

full all chapter5 chapter6 chapter7 chapter8 chapter9

chapter4 chapter5 chapter6 chapter7 chapter8 chapter9

Transparency and Accountability

Policy, Legal and Contractual Framework

Sector Organization and Institutions

Fiscal Design and Administration

Revenue Management and Distribution

Sustainable Development

  • It is recommended that fiscal mining regimes are progressive as opposed to regressive (despite the fact that so many are currently regressive), that is the share of revenue accruing to the state treasury should increase with greater profitability, not decline.  That way, governments share more in the benefits of mineral booms; the cost they pay is a reduced proportion of reduced revenue during downturns. 


  • Recommended fiscally progressive ‘Additional Taxation’ instruments include: variable income tax linked to profitability (in law in South Africa, Botswana, Uganda, Zambia); andresource rent (rate of return) tax (in law in Malawi, Liberia, and Zimbabwe) which involves calculating the internal rate of return of a project and then raising the marginal tax rate during times when a pre-determined “hurdle” rate of return is exceeded.


  • Inter-affiliate transactions can be used to move profit from one affiliate to another and thus reduce tax liabilities of the mining company in the host country. The most obvious inter-affiliate transactions are product sales from one affiliate to another, but there are many other types of transactions including sales of goods and services and provision of short term and long term financing. Monitoring and policing inter affiliate transactions can be an extremely difficult task.  Good practice is for the tax authority to set clear rules and procedures for tax treatment of inter-affiliate transactions and to properly police these.


  • Tax holidays will typically be ‘gamed’ by mining companies, distorting production decisions and reducing state revenues; they should be avoided.


  • Good practice is for the mining tax regime to be in the law and regulations and not modified in separate agreements, especially confidential agreements.  


  • States should guard against falling foul of gamed-scenarios where highly-leveraged subsidiary companies, in particular, use excessive debt to reduce tax assessments even whilst their parent firms maintain prudent levels of debt. To prevent this, governments may place a ceiling on the amount of interest payments or debt that is eligible for tax deduction purposes.


  • States should guard against the tax avoidance practice of ‘Treaty Shopping’: this occurs in situations where tax treaties do not exist to prevent double taxation and where a parent company owning a subsidiary firm operating in the territory of a host country government, sets up an intermediary “paper” company in a tax haven as a tax avoidance strategy.   Well-designed and implemented state legislation to both forbid and punish this should be in place.


  • Tax administration involves assessing taxes, auditing tax returns and collecting taxes. Tax instruments generally fall into two categories – simple to administer but regressive ( a per unit royalty) and challenging to administer but progressive (a Resource Rent Tax or Sliding Scale Royalty).  Good practice is to make sure that the administrative capacity to implement more complex tax regimes is in place.  


  • Good practice is for the tax authority to undertake field tax audits of mining enterprises, led by qualified and experienced staff, to prevent the risk of fraud.


  • Mining involves a variety of activities such as exploration work, mine development work, overburden removal, reclamation and restoration which are not found in other businesses and for which the accounting treatment may have significant implications for tax assessments.  Good practice is therefore for the Tax Authority to agree a detailed accounting treatment for mining companies regarding these and other mining-related activities.


  • The attraction of tax-free export processing zones for governments is their potential to spur increases in local employment and exports. 


  • However, such an approach is inappropriate for mineral or metal processing since the processing is capital intensive not labor intensive, so there will be relatively little increase employment; also the processing will likely take place in any case (because it saves the costs of transporting lower grade materials); and the metal will be exported in any case (so there will be little in the way of incremental exports).



No comments.