Generating Extractive Industry Revenues

Transcription

1 Philip Daniel Fiscal Affairs Department International Monetary Fund Generating Extractive Industry Revenues Kenya s Economic Successes, Prospects and Challenges National Treasury, Central Bank of Kenya, IMF Nairobi, September 17, 2013

2 IMF (FAD) TA actively engaged and research-based 2

3 Central objectives Maximize PV of net government revenues Timing of receipts Progressivity Ease of administration (for authorities) and compliance (for taxpayers) 3

4 Types of Fiscal Regime Licence Tax and Royalty Pure Service Service Contracts Contractual Risk Service Production Sharing Contracts Government usually owns minerals in the ground Licence: Investor has rights to 100% of production PSC: Contractor has rights to a share of production Petroleum Tax&Royalty and PSC systems most common Mining - Tax&Royalty; PSC uncommon Mechanics different, but economics can be equivalent Most countries have an hybrid system 4

5 Three main fiscal schemes (sometimes blended) Contractual, including production sharing or service contracts Tax and royalty, with licensing of areas State ownership or participation These can be made fiscally equivalent Staff advice works within all three 5 Design to achieve efficiency and transparency in each case

6 Fiscal Instruments for EI Bonuses (with bidding) Royalty Corporate income tax Explicit rent taxes State participation 6

7 Fiscal regimes for EI vary greatly Simulations for mining suggest government shares of percent but collection data suggest lower in practice For petroleum the simulated shares are higher: 65 to 85 percent Achieved shares below these ranges are cause for concern, or regret 7

8 FARI: Simulated petroleum field 8

9 Current Kenyan PSC Structure Annual Production Cost Petroleum (limited to 60% of petroleum revenue) Contractor s Petroleum Contractor s Share of Profit Petroleum (net) Profit Petroleum Government s Share of Profit Petroleum Minus: Windfall profit sharing if high price Total Contractor Share (net of income tax) Total Government Share (including contractor income tax)

10 Government Take Illustration of Government Take under POB and Separate Payment of CIT CIT PSC PSC Pay-on-behalf CIT paid separately 10

11 daily rate of profit petroleum (mbpd) Government share 450 mm bbl Offshore Field production year 70% 65% 60% 55% 50% 45% 40% 35% DROPP Government Share 11

12 Government share R-Factor Three Tiered R-Factor Illustration 80% 70% 60% 50% 40% 30% 20% 10% 0% Contract years R-factor (right axis) Government share 12

13 US$million, constant 2013 Government Revenue: R-factor vs. DROPP Large oil field onshore (450 mmbbl), Oil Price at $90, pre-tax IRR 33% 1,800 1,600 1,400 1,200 1, Kenya 2013 minimum terms - onshore Kenya PSC XX Kenya R-factor 13

14 Fiscal regimes: mining Taxes Standard Regime Specified Minerals Stylized SML and Investment Agreement Royalties CIT rate Depreciation of capital expenditures for CIT purposes Withholding Taxes (subject to lower rates under DTAs) VAT 10% on diamonds; 5% on gold and precious metals; 3% on other minerals 30% Straight-line with 40% deduction in the first year, and 6 further 100% annual installments of 10% Dividends - 10% for non-residents, 5% for residents; Interest - 15% for residents and non-residents; Local sales - 16%; Export sales - zero rated Subject to negotiation or discretionary prescription in SMLs CIT reductions of up to 50% of the standard rate have been negotiated in Investment Agreements Depends on whether the mineral has been defined as a "specified mineral" or not. Subject to negotiation or discretionary prescription in SMLs Remission of VAT may be provided under Investment Agreements Custom duties Machinery and spare parts used in mining imported by a licensed mining company are exempted 14

15 US$ million, constant 2013 Government Revenue: Different Tax Devices Stylized Mineral Sands Project with a pre-tax IRR 33% Kenya; Investment Agreement Kenya; RRT Kenya; Surcharge - uplift Kenya; Standard Royalty & CIT Kenya; Draft 2013 Mining Bill Kenya; VIT 15

16 Where do we go? Develop a single fiscal regime for future mining leases, with royalties varying by mineral as at present. Maintain petroleum production sharing contracts, but Modernize the model PSC for future contracts by introducing a petroleum profit sharing based on an economic criterion, such as the R-factor. Define gas terms for production sharing in existing contracts By scale of profit gas? By R-Factor or other means? Determine the preferred commercial configuration of the upstream, pipeline and LNG segments in any gas export project. Introduce competive bidding and new transparency measures. 16