sharing in governance of extractive industries
A comprehensive review of mining tax incentives in 21 countries found that more than half have offered a complete exemption from corporate income tax for nine years on average.
The new research from the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) provides the most granular view of tax competition in mining yet, showcasing how common tax incentives are in mining. This is of particular concern in African countries, which are more likely to grant incentives in mining contract than the primary law, raising concerns about the potential for corruption.
“Resource-rich countries compete to attract mining investment but run the risk of offering unnecessary or poorly designed tax incentives,” says Alexandra Readhead, Technical Advisor on Tax and Extractive Industries, IGF. “The use of tax incentives may lead countries to forgo vital mining revenues in exchange for unknown benefits - revenues which are needed to fund public services and infrastructure.”
It is particularly concerning that more than half of the countries surveyed offer a corporate income tax holiday either in the law, or in one or more mining contract. Statutory tax holidays are provided for in Ecuador, Madagascar, Niger, and the Philippines. Tax holidays in mining are problematic for two reasons:
“In certain cases, tax holidays last longer than the average life-of-mine, meaning governments may never collect income tax,” explains Readhead. “Tax holidays in mining are extremely costly for governments and can negatively impact communities surrounding mining projects.”
The IGF Mining Tax Incentives Database, a collection of files comparing the fiscal regimes of 104 mining projects across 21 countries, is the first large-scale, systematic attempt to compile tax incentives used by developing country governments to attract mining investment.
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