Tax incentives granted to mining companies are debated across the globe.
Whether granted by law or through long-term stabilized agreements, communities in resource-rich countries question whether tax incentives deprive them of the full value of their country’s extractive resources. Why? Because unrealized mining revenue often contrasts with the lack of vital public resources and infrastructure.
The database suggests a number of valuable lessons, four of which are highlighted below.
Contrary to public perception, we discovered it is more common for countries to grant incentives in the law, such as mineral or tax codes, than in project-specific contracts—except for reduced royalty rates, which are more often found in contracts.
The most common incentives offered to companies by governments are tax stabilization and corporate income tax incentives, followed by withholding tax incentives. Together, these generate the highest level of risk to revenue, especially as the average tax holiday in the database lasts nine years.
Surprisingly, cost-based incentives, in particular investment allowances and tax credits, are uncommon, despite being more efficient in attracting mining investments than profit-based incentives.
On average, taxes are stabilized for 20 years through stabilization provisions in law or contracts. A complete review of the database is available in a dedicated briefing.
For citizens in countries covered by the database, this summary data on tax incentives could ignite important national debates on tax policy. In it they can find answers to questions like: Did Guinea’s government reduce the number and length of income tax holidays in mining contracts following the adoption of a new mining code in 2013? Does state-owned company Gécamines in the Democratic Republic of the Congo contribute to the awarding of tax incentives to companies in which it has a stake? Will it undermine the controversial amendment of the mining code in 2018? Are the contractual terms of tax incentives in Zambia taken into account in the country’s already complex mining tax policy?
Mineral resources are collectively held assets that should not be squandered. A vigorous, informed domestic and international debate on the prevalence and effectiveness of tax incentives in the mining sector should be a priority for mineral-rich countries.