Fiscal Policy in Extractives Sector in Africa
What is fiscal policy:
Fiscal policy involves the decisions that a government (Ministry of
finance, tax authorities, parliaments) makes regarding collection of
revenue through taxation and about spending the revenue. It is often
contrasted with monetary policy, which is the use of money supply (by
central bank) in the economy to direct economic activity.
Mechanism
Description
Up-front payment for acquiring exploration
rights. Commonly used as a bid parameter
Signature bonus
(Notably for petroleum in the US offshore
continental shelf)
Production
Fixed payment on achieving certain
Bonus
cumulative production or production rate
Specific (amount per unit of volume
produced)
Ad-valorem (percentage of product value)
Ad-valorem progressive with price
Royalties
Ad-valorem progressive with production
Ad-valorem progressive with operating
ratio/profit
Royalty applied to operating margin (net
profits royalty)
Number of countries
Mining Petroleum
1
16
None
10
2
1
17
1
31
9
8
3
1
2
0
State, provincial, and/or local
CIT
Variable income tax
Resource rent taxes
Rate of corporate income tax at the
state, provincial,or local level in addition
to federal level. Common in Canada and
2
5
the U.S. as a province/state resource
charge in addition to federally imposed
CIT.
CIT where the tax rates increase with the
ratio of taxable income to revenue,
32 None
between an upper and lower bound
Cash flow with accumulation rate/uplift.
5
5
Can be assessed before or after CIT.
Cash flow with limited uplift on losses
None
2
(UK).(surcharge tax on cash flow)
Allowance for Corporate Capital
None 13
Allowance for Corporate Equity
None 14
Other additional
income Tax
Other profit taxation mechanisms that do not fall
under any of the categories above
Fixed production share
Cumulative production
R-Factor: ratio of cumulative revenues to cumulative
Production sharing
costs
Rate of return, pre- or post-tax
Production Level
Free equity: government receives percentage of
dividends without payment of any costs
State participation Carried equity: government contributions met by
investor and recovered from dividends with interest
Paid equity: government pays its share of costs
Social investments/ Resource companies build infrastructure or make
infrastructure
other social investments (hospitals, schools, etc).
Number of
countries
1
3
None
5
None None
None
13
None
None
3
13
2
None
3
8
None
19
1
6
25
67
Government’s objectives for Fiscal Design in the EI in Africa
SlidingSignature Flat
scale
Bonus
Royalty Royalty
Maximizing government
share of project life
Securing early revenue
Ensuring adequate
incentives for exploration
Visible share of commodity
price increases
Strategic ownership
interest
Maximize resource
utilization
Minimize administrative
burden risks
X
Resource
State
Rent Tax CIT/VIT Participation
X
X
X
X
X
X
X
X
X
X
X