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Tax Aspects of Domestic Resource Mobilisation – a Discussion of Enduring and Emerging Issues Taxation of Natural Resources – Annex: Cross-country comparisons:

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Presentation on theme: "Tax Aspects of Domestic Resource Mobilisation – a Discussion of Enduring and Emerging Issues Taxation of Natural Resources – Annex: Cross-country comparisons:"— Presentation transcript:

1 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

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. unrefined3 vs. 1.5 Energy Minerals Coal above 15% ash content Coal below 15% ash content Uranium oxide vs. concentrate Oil & Gas – shallow depth 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 COUNTRYGROSS SALES (VALUE) PROFIT –BASEDNET SMELTER RETURN SPECIFIC ROYALTY NEGOTIATED CONTRACT NONE CANADAX GREENLANDX SWEDENX USASeverance taxes AUSTRALIAX X (Northern Territ.) X CHINAX MEXICOX POLANDX ARGENTINAXXX BOLIVIAX BRAZILX PERU[X] Mar04 CHILE[X] Mar04 INDONESIAX KAZAKHSTANX UZBEKISTANX RUSSIAX P-NEW GUINEAXX PHILIPPINESX

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 MOZAMBIQU E X NAMIBIA X SWAZILAND X TANZANIA X ZAMBIA X ZIMBABWE X

5 Western Australia – royalty rates as on 1 January 2003 MINERALAD VALOREM ROYALTY % OF ROYALTY VALUE MINERALAD VALOREM ROYALTY % OF ROYALTY VALUE Attapulgite5%Lead: metallic2.5% Bauxite7.5%Leucoxene5% Chromite5%Lithium minerals5% Export coal7.5%Manganese7.5% Cobalt: concentrate5%Manganese: beneficiated5% Cobalt: metallic form2.5%NickelAccording to a formula Cobalt: as nickel by-product2.5%Ochre5% Copper: concentrate5%Platinoids2.5% Copper: metallic form2.5%Rutile5% Diamond7.5%Semi-precious stones7.5% Feldspar5%Silver2.5% Garnet2.5% to 5%Spongolite5% Gems and precious stones7.5%Tantalum, concentrate and beneficiated3.3% - 5% Ilmenite (Titanium oxide 90%)5%Tin metal2.5% Iron ore: lump ore7.5%Vanadium – negotiated with Minister1.5% to 5% Iron ore: fine ore5.625%Zinc: concentrate – metal5% and 2.5% Iron ore: beneficiated5%Zircon5% Kaolin5%Any other mineral not specifiedConcentrate at 5% Lead: concentrate5%Any other mineral not specifiedIf screened 7.5%

6 Western Australia – royalty rates as on 1 January 2003, in Australian $/c MINERALSpecific royalty – amount per tonne according to quantity produced or obtained Aggregate30c Agricultural limestone30c Building stone50c Clays30c Construction limestone30c Dolomite30c Gravel30c Gypsum30c Limestone, lime sands30c Metallurgical limestone50c Rock30c Salt30c Sand30c Silica50c Talc50c

7 International royalty rates (in %) comparisons across commodities COUNTRYGOLDPLATINUMDIAMONDSCOAL INDUSTRIAL MINERALS IRON ORE COPPER ARGENTINA0-3 CANADA –Quebec 20/tax inc. 20/taxable income 20/tax inc. 20/taxable Income 20/tax inc. CANADA – British Columbia 15/tax inc. 15/taxable income 15/tax inc. 15/taxable income 15/tax inc. CANADA – Ontario 18/tax inc. 18/taxable income 18 /tax inc. 18 /taxable income 18 /tax inc. CHINA4--41222 GREENLANDNegot.negotiated Negot.negotiatedNegot. RUSSIA68843.8 - 7.54.88 INDONESIA2--1013.512.5 MEXICO1.5-- 1.5 --1.5 SOUTH AFRICA (refined metals) 1.5351-3122

8 International royalty rates (in %) comparisons across commodities COUNTRYGOLDPLATINUMDIAMONDSCOAL INDUSTRIAL MINERALS IRON ORE COPPER KAZAKHSTANNegot.negotiated Negot.negotiatedNegot. PAPUA N-GUINEA2-- 2 2 PHILIPPINES2-- 222 POLAND10-- 26 3 UZBEKISTAN4--245.41.5-337.9 AUSTRALIA 1.25 to 2.5 --7.5 --2-7.55-7.5 IRELAND1.5-4.5 BOLIVIA1-7--3 111 BOTSWANA3-10 SOUTH AFRICA (refined metals) 1.5351-3122

9 International royalty rates (in %) comparisons across commodities COUNTRYGOLDPLATINUMDIAMONDSCOAL INDUSTRIAL MINERALS IRON ORE COPPER LESOTHO5-10 105-10 NAMIBIA?--104-- MALAWI5-10 MOZAMBIQUE3-10 SWAZILAND1-2.5 --1-2.5 TANZANIA3--53333 ZAMBIA2-5 5 ZIMBABWE2-10 BURKINA FASO3--7444 SOUTH AFRICA (refined metals) 1.5351-3122

10 International royalty rates (in %) comparisons across commodities COUNTRYGOLDPLATINUMDIAMONDSCOAL INDUSTRIAL MINERALS IRON ORE COPPE R GHANA3-12--3-12 IVORY COAST3--32.5--2.5 ANGOLA2-5 7.52-5 SOUTH AFRICA (refined metals) 1.5351-3122

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 RATEPRODUCTION TAX / ROYALTY/ EXPORT TAX WINDFALL PROFIT TAX ARGENTINA35% - mines benefit from 30 yrs fiscal stab. royalty: up to 3% export taxes: 5 - 20% -- AUSTRALIA30% 1.5 to 7.5%, ad valorem in W-Australia -- BRAZILWith surcharge & social contributions: 34% -- % -- CANADAFederal & provinces: 36.6% Profit-based: 15 to 20 %-- CHILE17% but non-resident cos distributions: 35% 3%, for base metal output > 60 000 tonnes -- China33%-- %-- COLOMBIA36.7%-- %-- PERU30%1 to 3%-- RUSSIA24%-- %-- UNITED STATES35%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 Structures 2006 Index of Economic Freedom – Heritage Foundation & Wall Street Journal Deloitte.Touche – Guide to Key Fiscal Information, Southern Africa, 2005/06 COUNTRYCORPORATE TAX RATEPRODUCTION TAX / ROYALTY WINDFALL PROFIT TAX ANGOLAMining cos: 40% JV Petroleum cos: 65.7% Prod sharing agreements: 50% 2 to 5% & diamonds 7.5% Petroleum royalty: 20% Petrol. transaction tax: 70% -- BOTSWANADiamond 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 -- CHAD45%-- CONGO, DEM REPUBLIC 40%, but mining cos negotiate individually -- GABON 35%-- %-- GHANA30%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 Structures 2006 Index of Economic Freedom – Heritage Foundation & Wall Street Journal Deloitte.Touche – Guide to Key Fiscal Information, Southern Africa, 2005/06 COUNTRYCORPORATE TAX RATEPRODUCTION TAX / ROYALTY WINDFALL PROFIT TAX MALI35%-- NAMIBIA Diamond mining: 55% Other mining: 37.5% Petroleum/gas extr.: 35% 4 to 10 %-- NIGERIA 30%-- SOUTH AFRICANon-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 levy2 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 FACTORAVERAGE TAX RATE (Y) MARGINAL TAX RATE TAXATION IN R 11001%0% 0 21002%0% 0 31003%0% 0 41004%0% 0 51005%0% 0 61006%7.5%45%0.45 71007%12.9%45%0.90 81008%16.9%45%1.35 91009%20.0%45%1.80 1010010%22.5%45%2.25 2010020%33.8%45%6.76 3010030%37.5%45%11.25 4010040%39.4%45%15.76 5010050%40.5%45%20.25 6010060%41.3%45%24.78 7010070%41.8%45%29.26 8010080%42.2%45%33.76 9010090%42.5%45%38.25 100 100%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 vol s: 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 (4 th 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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