Taxation of natural resources; policy options for Africa-J.A.Bwesigye

 

 Unlike other resources, taxation of natural resources poses a great challenge even to the most advanced tax frameworks. The problem is made worse in Africa where the governance systems are weak and unable to design effective tax policy frameworks. The rationale behind this complexity is anchored principally in; the high costs and long production periods involved, the prospect of substantial rents, the uncertainty that’s involved at almost every stage of project development, the international considerations at play where the efficacy of a tax system depends not only on the tax regime of the hosting country but also on the country owning the investing corporations, the complexity of the asymmetric information involved, the market power where corporations involved have great control over markets as opposed to host governments, among others.

The concerns above have led to global concern by independent governments, especially in the global south on how to tax their natural resources. In Africa, the problem is worsened by an acute shortage of a human resource base to manage corporate taxes in the sector of natural resources. This then pauses a question as to what should sound principles be for rethinking the taxation of natural resources? There is a need for greater adoptability in the tax system itself, simplicity, reliability, and progressivity which are a key future of a dynamic tax policy regime for natural resources in Africa. Climate change is another key component that nations must consider as they develop their fiscal policy regimes. At a macro level, there is a need for a better understanding of the principles of mineral taxation. There is a further need for optimizing all the stakeholders to have a huge pool of options from which nations choose the most appropriate policy options. An effective natural resource policy must focus on the link between natural resource exploitation and societal sustainability. The future of resource taxation creates a need to redefine financial contribution from mining. 

Trust, accountability, the right amount of tax, transparency of how much is the tax paid. There is a need to know that mining companies are paying the right amount of tax. The right amount of tax is to tax as much as possible while ensuring that investors can recover their investments. There are fundamental problems with the current resource taxation system; there is significant concern that governments are not collecting enough revenue from mining companies this results from having a lot of expectations from what mining can contribute, difficulty in understanding the nature of the mining industry where for example governments tax projects at an infant stage before they have become profitable. Other tax systems are also not fit for the purpose due to heavy reliance on profit-based taxes which are hard to collect. There are challenges in determining actual revenues and costs and the possibility of manipulating the figures this approach makes it hard for governments to collect and easy for companies to manipulate. The issue of deals and other incentives given out by governments make it hard for the operation of this approach. Consider for example the aspect of tax holidays which significantly reduce government revenues. The literature points to royalties, rent taxes, production sharing, equity participation, and auctions as some of the key tax instruments and fiscal regimes that can help governments effectively obtain a fair share of their tax revenues from natural resources.