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Tax Aspects of Domestic Resource Mobilisation

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Title: Tax Aspects of Domestic Resource Mobilisation


1
Tax Aspects of Domestic Resource Mobilisation a
Discussion of Enduring and Emerging
IssuesTaxation of Natural Resources
AnnexCross-country comparisons royalties
rent taxes
  • UN Financing for Development Office IFAD
  • Rome, 4-5 September 2007
  • M Grote
  • National Treasury, South Africa

2
SA proposed royalty rates (Draft 2006)
Commodity Classification Mineral Petroleum Product within Classification Standard Royalty Rate in
Base Metals / Minerals Antimony, cobalt, copper, iron, lead, manganese, nickel, tin, zinc, silicon, vanadium, chrome refined vs. unrefined 2 vs. 4
Special metals Illmenite, rutile, zircon refined vs. unrefined 3 vs. 1.5
Energy Minerals Coal above 15 ash content Coal below 15 ash content Uranium oxide vs. concentrate Oil Gas shallow depth lt 500m vs. deep water of gt 500m 1 3 1.5 vs. 3 3 vs. 1.5
Construction material Limestone, lime, dolomite, phosphate rock, aggregates, salt 0
Low value minerals Feldspar, fluorspar, barytes, gypsum, magnesite, mineral pigments, silica, sillimanite, talc, slate, shale, attapulgite, bentonite, flint clays, etc 0.5
Industrial Agricultural Minerals Andalusite, asbestos, barytes, mica, calcite, fluorspar, gypsum, granite, kieselguhr, phosphates, clays 1
Diamonds Unpolished diamonds 5
Precious Metals Gold silver refined vs. unrefined Platinum group metals refined vs. unrefined 1.5 vs. 3 3 vs. 6
Precious Stones Amethyst, agate, quartz, tiger eye, beryl, topaz, tourmaline, malachite etc. 5
3
Cross-country analysis of royalty regimes
COUNTRY GROSS SALES (VALUE) PROFIT BASED NET SMELTER RETURN SPECIFIC ROYALTY NEGOTIATED CONTRACT NONE
CANADA X
GREENLAND X
SWEDEN X
USA Severance taxes
AUSTRALIA X X (Northern Territ.) X
CHINA X
MEXICO X
POLAND X
ARGENTINA X X X
BOLIVIA X
BRAZIL X
PERU X Mar04
CHILE X Mar04
INDONESIA X
KAZAKHSTAN X
UZBEKISTAN X
RUSSIA X
P-NEW GUINEA X X
PHILIPPINES X
4
Cross-country analysis of royalty regimes
African jurisdictions
COUNTRY GROSS SALES (VALUE) PROFIT BASED NET SMELTER RETURN (narrower version of profit) NEGOTIATED CONTRACT NONE
ANGOLA X
BOTSWANA X
GHANA X
IVORY COAST X
LESOTHO X
MALAWI X
MOZAMBIQUE X
NAMIBIA X
SWAZILAND X
TANZANIA X
ZAMBIA X
ZIMBABWE X
5
Western Australia royalty rates as on 1 January
2003
MINERAL AD VALOREM ROYALTY OF ROYALTY VALUE MINERAL AD VALOREM ROYALTY OF ROYALTY VALUE
Attapulgite 5 Lead metallic 2.5
Bauxite 7.5 Leucoxene 5
Chromite 5 Lithium minerals 5
Export coal 7.5 Manganese 7.5
Cobalt concentrate 5 Manganese beneficiated 5
Cobalt metallic form 2.5 Nickel According to a formula
Cobalt as nickel by-product 2.5 Ochre 5
Copper concentrate 5 Platinoids 2.5
Copper metallic form 2.5 Rutile 5
Diamond 7.5 Semi-precious stones 7.5
Feldspar 5 Silver 2.5
Garnet 2.5 to 5 Spongolite 5
Gems and precious stones 7.5 Tantalum, concentrate and beneficiated 3.3 - 5
Ilmenite (Titanium oxide 90) 5 Tin metal 2.5
Iron ore lump ore 7.5 Vanadium negotiated with Minister 1.5 to 5
Iron ore fine ore 5.625 Zinc concentrate metal 5 and 2.5
Iron ore beneficiated 5 Zircon 5
Kaolin 5 Any other mineral not specified Concentrate at 5
Lead concentrate 5 Any other mineral not specified If screened 7.5
6
Western Australia royalty rates as on 1 January
2003, in Australian /c
MINERAL Specific royalty amount per tonne according to quantity produced or obtained
Aggregate 30c
Agricultural limestone 30c
Building stone 50c
Clays 30c
Construction limestone 30c
Dolomite 30c
Gravel 30c
Gypsum 30c
Limestone, lime sands 30c
Metallurgical limestone 50c
Rock 30c
Salt 30c
Sand 30c
Silica 50c
Talc 50c
7
International royalty rates (in ) comparisons
across commodities
COUNTRY GOLD PLATINUM DIAMONDS COAL INDUSTRIAL MINERALS IRON ORE COPPER
ARGENTINA 0-3 0-3 0-3 0-3 0-3 0-3 0-3
CANADA Quebec 20/tax inc. 20/taxable income 20/taxable income 20/tax inc. 20/taxable Income 20/tax inc. 20/tax inc.
CANADA British Columbia 15/tax inc. 15/taxable income 15 /taxable income 15/tax inc. 15/taxable income 15/tax inc. 15/tax inc.
CANADA Ontario 18/tax inc. 18/taxable income 18/taxable income 18 /tax inc. 18 /taxable income 18 /tax inc. 18 /tax inc.
CHINA 4 -- 4 1 2 2 2
GREENLAND Negot. negotiated negotiated Negot. negotiated Negot. Negot.
RUSSIA 6 8 8 4 3.8 - 7.5 4.8 8
INDONESIA 2 -- 10 13.5 1 2.5 2.5
MEXICO 1.5 -- -- 1.5 1.5 -- 1.5
SOUTH AFRICA (refined metals) 1.5 3 5 1-3 1 2 2
8
International royalty rates (in ) comparisons
across commodities
COUNTRY GOLD PLATINUM DIAMONDS COAL INDUSTRIAL MINERALS IRON ORE COPPER
KAZAKHSTAN Negot. negotiated negotiated Negot. negotiated Negot. Negot.
PAPUA N-GUINEA 2 -- -- -- 2 -- 2
PHILIPPINES 2 -- -- -- 2 2 2
POLAND 10 -- -- 2 6 -- 3
UZBEKISTAN 4 -- 24 5.4 1.5-3 3 7.9
AUSTRALIA 1.25 to 2.5 -- 7.5 7.5 -- 2-7.5 5-7.5
IRELAND 1.5-4.5 1.5 - 4.5 1.5 - 4.5 1.5-4.5 1.5 - 4.5 1.5-4.5 1.5 - 4.5
BOLIVIA 1-7 -- 3 -- 1 1 1
BOTSWANA 3-10 3-10 3-10 3-10 3-10 3-10 3-10
SOUTH AFRICA (refined metals) 1.5 3 5 1-3 1 2 2
9
International royalty rates (in ) comparisons
across commodities
COUNTRY GOLD PLATINUM DIAMONDS COAL INDUSTRIAL MINERALS IRON ORE COPPER
LESOTHO 5-10 5-10 10 5-10 5-10 5-10 5-10
NAMIBIA ? -- 10 4 -- -- --
MALAWI 5-10 5-10 5-10 5-10 5-10 5-10 5-10
MOZAMBIQUE 3-10 3-10 3-10 3-10 3-10 3-10 3-10
SWAZILAND 1-2.5 1-2.5 -- 1-2.5 1-2.5 1-2.5 1-2.5
TANZANIA 3 -- 5 3 3 3 3
ZAMBIA 2-5 2-5 5 2-5 2-5 2-5 2-5
ZIMBABWE 2-10 2-10 2-10 2-10 2-10 2-10 2-10
BURKINA FASO 3 -- 7 4 4 4 --
SOUTH AFRICA (refined metals) 1.5 3 5 1-3 1 2 2
10
International royalty rates (in ) comparisons
across commodities
COUNTRY GOLD PLATINUM DIAMONDS COAL INDUSTRIAL MINERALS IRON ORE COPPER
GHANA 3-12 -- 3-12 3-12 3-12 3-12 3-12
IVORY COAST 3 -- 3 2.5 -- 2.5 2.5
ANGOLA 2-5 2-5 7.5 2-5 2-5 2-5 2-5

SOUTH AFRICA (refined metals) 1.5 3 5 1-3 1 2 2
11
2004/05 Cross-country tax rate analysis
PriceWaterhouseCoopers Corporate Taxes
Worldwide Summaries April 2005 NBER Working
Paper on Developing Countries Tax Structures
COUNTRY Non-Africa CORPORATE TAX RATE PRODUCTION TAX / ROYALTY/ EXPORT TAX WINDFALL PROFIT TAX
ARGENTINA 35 - mines benefit from 30 yrs fiscal stab. royalty up to 3 export taxes 5 - 20 --
AUSTRALIA 30 1.5 to 7.5, ad valorem in W-Australia --
BRAZIL With surcharge social contributions 34 -- --
CANADA Federal provinces 36.6 Profit-based 15 to 20 --
CHILE 17 but non-resident cos distributions 35 3, for base metal output gt 60 000 tonnes --
China 33 -- --
COLOMBIA 36.7 -- --
PERU 30 1 to 3 --
RUSSIA 24 -- --
UNITED STATES 35 Severance taxes-- Proposed for oil
12
2004/05 Cross-country tax rate analysis
PriceWaterhouseCoopers Corporate Taxes
Worldwide Summaries April 2005 NBER Working
Paper on Developing Countries Tax
Structures2006 Index of Economic Freedom
Heritage Foundation Wall Street
JournalDeloitte.Touche Guide to Key Fiscal
Information, Southern Africa, 2005/06
COUNTRY CORPORATE TAX RATE PRODUCTION TAX / ROYALTY WINDFALL PROFIT TAX
ANGOLA Mining cos 40 JV Petroleum cos 65.7 Prod sharing agreements 50 2 to 5 diamonds 7.5 Petroleum royalty 20 Petrol. transaction tax 70 --
BOTSWANA Diamond mining 25 Post 1998 mines formula y 70-1500/x, (x is ratio of taxable income over gross income, but 25 min rate 3 to 10, net smelter return basis --
CHAD 45 -- --
CONGO, DEM REPUBLIC 40, but mining cos negotiate individually -- --
GABON 35 -- --
GHANA 30 3 to 12 --
13
2004/05 Cross-country tax rate analysis
PriceWaterhouseCoopers Corporate Taxes
Worldwide Summaries April 2005 NBER Working
Paper on Developing Countries Tax
Structures2006 Index of Economic Freedom
Heritage Foundation Wall Street
JournalDeloitte.Touche Guide to Key Fiscal
Information, Southern Africa, 2005/06
COUNTRY CORPORATE TAX RATE PRODUCTION TAX / ROYALTY WINDFALL PROFIT TAX
MALI 35 -- --
NAMIBIA Diamond mining 55 Other mining 37.5 Petroleum/gas extr. 35 4 to 10 --
NIGERIA 30 -- --
SOUTH AFRICA Non-gold 29 Gold mining formula y 45-255/x, (x ratio of taxable income over gross income) with 5 tax-free tunnel 2006-draft proposal with rates of 0.5 to 5, with lower rates, incentivising mineral beneficiation 20 to 40 for certain oil leases
TANZANIA 30 all mineral exports 3 diamonds 5 petroleum 12.5 --
ZAMBIA Other mining 35 Copper cobalt 25 Precious minerals 5 All other minerals 2 Copper cobalt 0.6 --
ZIMBABWE 15 plus 3 AIDS levy 2 to 10 --
14
SA gold mining tax formula
  • 1966 gold mining formula had average tax rate
    spreads ranging from 0 to 70.5. (unacceptable,
    as every of profit should attract income tax,
    but govt. created incentive to mine marginal ore)
  • Only taxable income from 5 profit ratio upwards
    attracted tax
  • Currently, income derived from mining of gold is
    calculated according to following formulae (on
    basis of new 2005 corporate rate of 29)
  • Y 35 175/X (elected to be exempt from STC).
  • Y 45 225/X (not exempt from STC),
  • where Y is the percentage tax payable and x is
    profit ratio of the mine, expressed as
    percentage.
  • Profit ratio (x) is calculated as follows
    taxable income from gold mining over gross mining
    income.

15
Tax effect of SA gold mining formula Y 45-225/X
TAXABLE INCOME IN R TOTAL INCOME IN R X FACTOR AVERAGE TAX RATE (Y) MARGINAL TAX RATE TAXATION IN R
1 100 1 0 0 0
2 100 2 0 0 0
3 100 3 0 0 0
4 100 4 0 0 0
5 100 5 0 0 0
6 100 6 7.5 45 0.45
7 100 7 12.9 45 0.90
8 100 8 16.9 45 1.35
9 100 9 20.0 45 1.80
10 100 10 22.5 45 2.25
20 100 20 33.8 45 6.76
30 100 30 37.5 45 11.25
40 100 40 39.4 45 15.76
50 100 50 40.5 45 20.25
60 100 60 41.3 45 24.78
70 100 70 41.8 45 29.26
80 100 80 42.2 45 33.76
90 100 90 42.5 45 38.25
100 100 100 42.8 45 42.80
16
Cross-country analysis - oil gas
  • Jurisdictions favour
  • Separate oil and gas tax legislation, not part of
    mining regime
  • back-end loaded regime due to immediate expensing
    of all investments
  • Profile of most favoured fiscal regime based on
    study (1997) comparing 43 countries
  • Tax design based on field-by-field approach
  • 95,3 of countries levy CIT with average nominal
    rate of 33,9
  • 83,7 impose CIT in combination with royalty
  • 12 apply sliding scale royalties based on
    production vols 0-30
  • 15 impose fixed royalties, from 12 to 15
  • 14 front-end load through bonus bidding
  • 46,5 impose acreage fees
  • production sharing contracts are not favoured
    (only 4 then - more now)
  • carried equity participation by Government
    limited (12)
  • rate of return-linked windfall profit taxes are
    mostly rejected

17
Competitive outlook for key mining jurisdictions
  • Canadian Fraser Institute Annual Survey of Mining
    Companies 2004/05 based on feedback of 1 121
    international senior junior mining cos
  • Policy Potential Index - report card to
    governments on attractiveness of respective
    mining policies, tax, environmental regs., admin
    regs compliance burden, native land
    claims/equity participation, infrastructure,
    labour laws, political stability. Highest
    possible score on index is 100
  • Nevada at 95 (highest), Manitoba 89,
    Alberta/Ontaria 78, Western Australia 74-78,
    Chile 74, Chile 74, Mexico 71, Ghana 60, Tanzania
    56, China 49, Brazil 47, Peru 46, Zambia 38,
    Botswana 35, SA 32 (2002/03 still 47),
    Philippines 24, Russia 19 (4th lowest), DRC 11,
    Zimbabwe 8 (lowest)
  • Mineral Potential Index, rates regions
    geological attractiveness
  • Nevada 96 (highest), Chile 94, Quebec 89,
    W-Australia 87, Mexico 87, Brazil 83, Mali 80,
    Tanzania 77, Ghana 76, Peru 74, China 72,
    Botswana 67, SA 54 (2002/03 71), Russia 53,
    Zambia 53, Alaska 43, Zimbabwe 22, California 16
    (lowest)
  • Best Practices Mineral Potential Index shows
    mineral potential of countries, assuming their
    policies are based on best practice together with
    mineral potential
  • Tasmania 100 (highest), Alaska 98, W-Australia
    97, Russia 93, SA 91 (tied with New South Wales
    South Australia, China, Zambia, Mexico), Botswana
    84, Ghana Mali 83, Zimbabwe 60, Ireland 38
    (lowest).
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