Mining Taxation. World Bank, March 2009 Extractive Industries Week. Daniel Dumas Economic & Legal Section

Transcription

1 Mining Taxation World Bank, March 2009 Extractive Industries Week Daniel Dumas Economic & Legal Section

2 The Role the Economic & Legal Section Mission : empowering countries to secure and sustain rights in trade, investment, maritime boundaries. Achieved through: Establishment of well balanced policies as well as fiscal, legal and commercial frameworks Identification of economic and legal issues aligned to country needs, Commonwealth experience and best practice Policy formulation and development of regulatory, fiscal and institutional implementation instruments Assistance in negotiation processes where relevant (investment agreements, maritime boundary negotiations) 2

3 Economic & Legal Section Diagnostic Diagnose investment impediments & regulatory weaknesses using international benchmarks Policy Framework Develop: sector policies fiscal regimes licensing regimes institutional arrangements Commercia l Framework Design and implement mining & petroleum laws, regulations & model contracts Negotiation s Review investment proposals & negotiate agreements Licensing Help to promote investment & conduct licensing

4 Commonwealth Secretariat & ICMM The report: Initially not perceived as an intuitive cooperation Quality of the report & excellent peer review Possibility to influence some of its content Enhance point of view of governments The Secretariat s objectives From two monologues to one dialogue Gap between great policies & design principles vs. Implementation and results. From intervening at the implementation and negotiation stages towards getting better understanding / agreement on the principles

5 Three partners with different objectives Max Return Acceptable risk Upside important to remunerate risk Can deal with volatility Minimum Risk Fixed Return Upside not that important Volatility not important if min is covered Guaranteed Minimum Revenue Stable Revenue but; Feels entitled to its share of the Upside Risk not that important

6 Mining, Volatility & Economic Rent $/MT Metals Prices $/MT 6

7 $/MT Mining, Volatility & Economic Rent $/MT Mercedes (in ) Metals Prices Source: IMF, Adapted from Mercedes Benz 7

8 Return on Capital & Labour in a risky environment Upside derives and remunerate higher risk level taken by companies. Riskier because highly capital Intensive should have lower tax levels If mining would be taxed the same way as any industry, would avoid special deal. Return Capital & Labour + Economic Rent Upside derives from the value (rent) of the resources, owned by the country Many other industries are also capital Intensive Issue is not that fiscal regime is different, issue is that some terms are negotiated rather than

9 Terms should negotiated on a project basis based on specific project economics Royalties should be revised downwards if prices decrease Prices and demand increase, lead to increase in input costs Companies sign contracts with A government Other industries do not have this flexibility. Tax design should take into account project profitability Royalties should be seen as any other uncompressible cost. Prices increase directly lead to additional profits. In the long run, companies sign contracts with countries (the people). Government

10 Conclusion Flexibility, Neutrality, Progressivity and Transparency are key. Diversity (of tax instruments) is neglected Right balance between diversity and simplicity Sophisticated regime is not always better Some minimal revenue for governments (Royalties) Some progressive tax instruments on profitability Keep negotiated terms to a minimum and make 10 ECONOMIC & LEGAL SECTION