Ongoing increases in commodity prices and the growing bottom lines of resources companies juxtaposed against struggling or still recovering economies has heightened the call for mineral tax to be reviewed in many countries.
“There is considerable interest today regarding income tax rates, mining tax rates and mining royalty rates levied on mining companies in various countries where significant mining occurs,” said Hein Boegman, PwC Africa Mining Leader.
“This interest has been heightened as the global economy slowly emerges from the recession and mining companies lead the way by providing the raw materials and energy for manufacturing and other activities. Such interest is even greater in countries where mining is a significant portion of GDP and, therefore, a potentially significant source of revenue for the government,” said Boegman.
PwC reported that in 2010, global mining merger and acquisition deals worth US$113 billion brought the decade total for the mining sector to over 11,000 transactions worth close to $785 billion.
This heightened activity in the sector, prompted PwC to do a comparative summary of income taxes, mining taxes and mining royalties in the resource rich countries such as Australia, Brazil, Canada, Chile, China and Kazakhstan.
Boegman said governments at both federal and local level probably calculate what income taxes, mining taxes and royalties can be levied without driving mining companies currently operating in their country away or discouraging future exploration in their country.
“They temper that sentiment with the desire to actually incentivize mining activity in their country in order to attract the relatively high paying jobs mining creates as well as provide the raw materials needed to support downstream manufacturing,” he said.
Pursuing sometimes different interests to those of government, management of mining companies would aim to explore, develop and operate within the laws in such a way as to maximize shareholder return.
“That means paying appropriate taxes and royalties as the laws are currently written, but no more than is required,” said Boegman.
“However this effort to minimize corporate fiscal payments is often tempered by the view that 'paying your fair share of taxes' is typically viewed today as part of the definition of sustainability. This may mean actually foregoing tax deductions or positions which could legally reduce taxes because claiming the deductions might reduce taxes 'too much' in the world of public opinion.”
Interest in mining taxation has been further heightened by the huge budget deficits that exist in many countries.
Industry CEOs have expressed concern that governments facing such challenging deficits could look to the mining industry as a source of additional taxation.
The Australian government's 2010 abandoned proposal of a “Resources Super Profits Tax” is a case in point.
The proposal was met with much resistance it was eventually replaced by a Mineral Resource Rent Tax.
“Royalty increases have been flagged in several other jurisdictions,” said Boegman. - I-Net Bridge