Tax Aspects of Domestic Resource Mobilisation
– a Discussion of Enduring and Emerging Issues
Taxation of Natural Resources – Annex:
Cross-country comparisons: royalties & rent taxes
UN Financing for Development Office & IFAD
Rome, 4-5 September 2007
M Grote
National Treasury, South Africa
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
Special metals
Energy Minerals
Illmenite, rutile, zircon: refined vs. unrefined
Coal above 15% ash content
Coal below 15% ash content
Uranium oxide vs. concentrate
Oil & Gas – shallow depth < 500m vs. deep water of > 500m
3 vs. 1.5
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
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
Precious Stones
Amethyst, agate, quartz, tiger eye, beryl, topaz, tourmaline, malachite
etc.
2 vs. 4
0.5
1.5 vs. 3
3 vs. 6
5
Cross-country analysis of royalty regimes
COUNTRY
GROSS SALES
(VALUE)
CANADA
PROFIT –BASED
NET SMELTER
RETURN
SPECIFIC
ROYALTY
NEGOTIATED
CONTRACT
X
GREENLAND
X
SWEDEN
USA
X
Severance taxes
AUSTRALIA
X
CHINA
X
MEXICO
X
POLAND
X
ARGENTINA
X
BOLIVIA
X
BRAZIL
X
PERU
[X]
Mar’04
CHILE
[X]
Mar’04
INDONESIA
NONE
X (Northern
Territ.)
X
X
X
X
KAZAKHSTAN
X
UZBEKISTAN
X
RUSSIA
X
P-NEW GUINEA
X
PHILIPPINES
X
X
Cross-country analysis of royalty regimes – African
jurisdictions
COUNTRY
ANGOLA
GROSS SALES
(VALUE)
X
X
IVORY
COAST
X
LESOTHO
X
MALAWI
X
MOZAMBIQU
E
X
NAMIBIA
X
X
SWAZILAND
TANZANIA
X
X
ZAMBIA
ZIMBABWE
NET SMELTER
RETURN (narrower
version of profit)
X
BOTSWANA
GHANA
PROFIT –
BASED
X
NEGOTIATED
CONTRACT
NONE
Western Australia – royalty rates as on 1 January 2003
MINERAL
Attapulgite
Bauxite
Chromite
Export coal
Cobalt: concentrate
AD VALOREM ROYALTY
% OF ROYALTY VALUE
5%
7.5%
5%
7.5%
5%
MINERAL
Lead: metallic
AD VALOREM ROYALTY
% OF ROYALTY VALUE
2.5%
Leucoxene
5%
Lithium minerals
5%
Manganese
Manganese: beneficiated
7.5%
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
Diamond
7.5%
Semi-precious stones
7.5%
Feldspar
5%
Silver
2.5%
Garnet
Gems and precious stones
Ilmenite (Titanium oxide 90%)
Iron ore: lump ore
Iron ore: fine ore
2.5% to 5%
7.5%
5%
7.5%
5.625%
Spongolite
Tantalum, concentrate and beneficiated
Tin metal
Vanadium – negotiated with Minister
Zinc: concentrate – metal
5%
5%
3.3% - 5%
2.5%
1.5% to 5%
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%
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
International royalty rates (in %)
comparisons across commodities
GOLD
PLATINUM
DIAMONDS
COAL
INDUSTRIAL
MINERALS
IRON
ORE
COPPER
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.
COUNTRY
ARGENTINA
CHINA
4
--
4
1
2
2
2
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
GREENLAND
International royalty rates (in %)
comparisons across commodities
GOLD
PLATINUM
DIAMONDS
COAL
INDUSTRIAL
MINERALS
IRON
ORE
COPPER
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
COUNTRY
KAZAKHSTAN
International royalty rates (in %)
comparisons across commodities
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
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
COUNTRY
TANZANIA
International royalty rates (in %)
comparisons across commodities
COUNTRY
GHANA
GOLD PLATINUM DIAMONDS
COAL
INDUSTRIAL
MINERALS
IRON
ORE
COPPE
R
3-12
--
3-12
3-12
3-12
3-12
3-12
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
IVORY COAST
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
--
With surcharge & social
contributions: 34%
-- %
--
Federal & provinces:
36.6%
Profit-based: 15 to 20 %
--
CHILE
17% but non-resident co’s
distributions: 35%
3%, for base metal output
> 60 000 tonnes
--
China
33%
-- %
--
36.7%
-- %
--
PERU
30%
1 to 3%
--
RUSSIA
24%
-- %
--
UNITED STATES
35%
Severance taxes-- %
Proposed for oil
BRAZIL
CANADA
COLOMBIA
2004/05 Cross-country tax rate analysis
PriceWaterhouseCoopers Corporate Taxes – Worldwide Summaries
April 2005 NBER Working Paper on Developing Countries’ Tax Structures
2006 Index of Economic Freedom – Heritage Foundation & Wall Street Journal
Deloitte.Touche – Guide to Key Fiscal Information, Southern Africa, 2005/06
COUNTRY
ANGOLA
CORPORATE TAX RATE
PRODUCTION TAX /
ROYALTY
WINDFALL PROFIT
TAX
Mining co’s: 40%
JV Petroleum co’s: 65.7%
Prod sharing agreements: 50%
2 to 5% & diamonds 7.5%
Petroleum royalty: 20%
Petrol. transaction tax: 70%
--
Diamond mining; 25%
Post 1998 mines: formula y = 701500/x, (x is ratio of taxable income
over gross income, but 25% min rate
3 to 10%, net smelter return
basis
--
45%
--
--
40%, but mining co’s negotiate
individually
--
--
GABON
35%
-- %
--
GHANA
30%
3 to 12%
--
BOTSWANA
CHAD
CONGO,
DEM
REPUBLIC
2004/05 Cross-country tax rate analysis
PriceWaterhouseCoopers Corporate Taxes – Worldwide Summaries
April 2005 NBER Working Paper on Developing Countries’ Tax Structures
2006 Index of Economic Freedom – Heritage Foundation & Wall Street Journal
Deloitte.Touche – Guide to Key Fiscal Information, Southern Africa, 2005/06
COUNTRY
CORPORATE TAX RATE
MALI
PRODUCTION TAX /
ROYALTY
WINDFALL PROFIT
TAX
35%
--
--
NAMIBIA
Diamond mining:
55%
Other mining:
37.5%
Petroleum/gas extr.: 35%
4 to 10 %
--
NIGERIA
30%
--
--
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
30%
all mineral exports: 3%
diamonds:
5%
petroleum:
12.5%
-- %
35%
25%
Precious minerals: 5%
All other minerals: 2%
Copper & cobalt: 0.6%
-- %
15% plus 3% AIDS levy
2 to 10%
-- %
SOUTH AFRICA
TANZANIA
ZAMBIA
ZIMBABWE
Other mining:
Copper & cobalt:
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.
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
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
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 co’s
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 region’s 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).