- International Monetary Fund
- Published Date:
- April 2010
The Taxation of Petroleum and Minerals
There are few areas of economic policy-making in which the returns to good decisions are so high – and the punishment of bad decisions so cruel – as in the management of natural resource wealth. Rich endowments of oil, gas and minerals have set some countries on courses of sustained and robust prosperity; but they have left others riddled with corruption and persistent poverty, with little of lasting value to show for squandered wealth. And amongst the most important of these decisions are those relating to the tax treatment of oil, gas and minerals.
This book provides a comprehensive and accessible account of the main issues -drawing lessons from theory, describing the main features of current practice in each of these areas, and addressing the practicalities of administration – in taxing these resources. What share of the proceeds from the extraction of these resources should governments take? How can investors be given the assurances in relation to tax treatment they require if they are to be willing to invest billions of dollars in projects that will last decades? To what extent, and how, should government’s tax take be sensitive to commodity prices? How can governments evaluate alternative possible tax regimes? Can, and should, auctions play a greater role in these sectors? What is the experience with, and potential of, innovative forms of corporate taxation in this area? Should government participate directly in exploration and extraction? These and many other key questions receive thorough attention.
The contributions in this book – by widely-respected experts drawn from the international institutions, academe and the private sector – provide a guide to past experiences and current thinking, as well as some new ideas on profits tax design, that is not only readable, but detailed enough to inform practical decision-making and to bring researchers to the frontiers of the topic. This book will be of interest to economics postgraduates and researchers working on resource issues, as well as professionals working on taxation of oil, gas and minerals/mining.
Philip Daniel is Deputy Head, Tax Policy Division, in the Fiscal Affairs Department of the International Monetary Fund. Michael Keen is Assistant Director in the Fiscal Affairs Department of the International Monetary Fund, where he was previously head of the Tax Policy and Tax Coordination divisions. Charles McPherson is Technical Assistance Adviser in the Fiscal Affairs Department of the International Monetary Fund with particular responsibilities for fiscal and financial policies in resource rich countries.
The Taxation of Petroleum and Minerals
Principles, problems and practice
Edited by Philip Daniel, Michael Keen and Charles McPherson
First published 2010
2 Park Square, Milton Park, Abingdon, Oxon OX 14 4RN
Simultaneously published in the USA and Canada
711 Third Avenue, New York, NY10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2010 International Monetary Fund
Nothing contained in this book should be reported as representing the views of the IMF, its Executive Board, member governments, or any other entity mentioned herein. The views expressed in this book belong solely to the authors.
Typeset in Times by Wearset Ltd, Boldon, Tyne and Wear Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire
All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
The taxation of petroleum and minerals: principles, problems and practice/
edited by Philip Daniel, Michael Keen and Charles McPherson.
Includes bibliographical references and index.
Petroleum-Taxation. 2. Mines and mineral resources-Taxation. 3. Mining leases. I. Daniel, Philip. II. Keen, Michael. III. McPherson, Charles P., 1944-
ISBN13: 9780415781381 (hbk)
ISBN13: 978-0-415-78138-1 (pbk)
ISBN13: 978-0-203-85108-1 (ebk)
philip daniel, michael keen, and charles mcpherson
robin boadway and michael keen
lindsay hogan and brenton goldsworthy
philip daniel, brenton goldsworthy, wojciech maliszewski, diego mesa puyo, and alistair watson
bryan c. land
philip daniel and emil m. sunley
Robin Boadway is David Chadwick Smith Chair in Economics at Queen’s University in Canada. He is President of the International Institute of Public Finance and past Editor of the Journal of Public Economics.
Jack Calder is a freelance oil tax administration consultant. He previously worked for the UK Inland Revenue, latterly as a Deputy Director of the Oil Taxation Office.
Paul Collier is Professor of Economics and Director of the Centre for the Study of African Economies at Oxford University, and former Director of Development Research at the World Bank. He is the author of many influential articles and books, including the best-selling The Bottom Billion.
Peter Cramton is Professor of Economics at the University of Maryland. Since 1983, he has conducted research on auction theory and practice. On the practical side, he is Chairman of Market Design Inc., an economics consultancy focusing on the design of auction markets.
Philip Daniel is Deputy Division Chief, Tax Policy, in the Fiscal Affairs Department of the International Monetary Fund. He formerly held posts at the Universities of Cambridge and Sussex (UK), and at the Commonwealth Secretariat. As a consultant, he advised many governments on commercial negotiations and policies for extractive industries.
Brenton Goldsworthy is an Economist in the Fiscal Affairs Department of the International Monetary Fund. He was formerly a Manager in the Macroeconomic Group in the Australian Treasury.
Lindsay Hogan is a Senior Economist in the Energy, Minerals and Trade Branch of the Australian Bureau of Agricultural and Resource Economics, where she works on international and domestic energy and minerals issues, and a range of natural resource management issues including water, fisheries and forestry.
Michael Keen is an Assistant Director in the Fiscal Affairs Department of the International Monetary Fund. He was formerly Professor of Economics at the University of Essex and President of the International Institute of Public Finance.
Graham Kellas is a Vice President in Wood Mackenzie’s consulting group and specializes in the analysis of fiscal regimes. He has advised several governments on appropriate fiscal policies and is principal author of Wood Mackenzie’s fiscal benchmarking studies. He previously worked with Petroconsultants, two exploration companies and with Professor Alex Kemp at Aberdeen University.
Bryan C. Land is a Senior Oil, Gas and Mining Specialist in the Oil, Gas and Mining Policy and Operations Unit of the World Bank. He was formerly a Special Advisor (Economic) and Head of the Economic and Legal Section in the Commonwealth Secretariat.
Charles McPherson is a Technical Assistance Advisor, Tax Policy, in the Fiscal Affairs Department of the International Monetary Fund. Before coming to the IMF, he was Senior Advisor and Manager, Oil and Gas Policy, at the World Bank. He previously worked at two major oil companies, focusing primarily on the negotiation of international government agreements.
Wojciech Maliszewski is an Economist in the European Department in the International Monetary Fund. He was formerly a Researcher in the Center for Social and Economic Research CASE in Warsaw and holds a PhD from the London School of Economics.
Peter Mullins is a Senior Tax Counsel with the Australian Tax Office (ATO). He was previously a Senior Economist with the International Monetary Fund, and prior to that held a number of senior positions in the Australian Treasury and ATO.
Carole Nakhle is an Associate Lecturer at the Surrey Energy Economics Centre, University of Surrey, UK, where she previously acted as energy research fellow for three years. She is also special parliamentary advisor in the House of Lords, UK, and formerly of Statoil Hydro.
Petter Osmundsen is Professor of Petroleum Economics at the Department of Industrial Economics, the University of Stavanger. He was formerly Associate Professor of Economics at the Norwegian School of Economics and Business Administration.
Diego Mesa Puyo is an Economist at Pricewaterhouse Coopers Canada. Between 2007 and 2009 he was a member of the Fiscal Analysis of Resource Industries team in the Fiscal Affairs Department of the International Monetary Fund. He was also a graduate intern in the United Nations Economic Commission for Latin America and the Caribbean.
Emil M. Sunley served at the IMF as an Assistant Director in the Fiscal Affairs Department, prior to that, he was a tax director at Deloitte & Touche, Deputy Assistant Secretary for Tax Policy at the U.S. Treasury, and a senior fellow at the Brookings Institution.
Alistair Watson is a Technical Assistance Advisor, Tax Policy, in the Fiscal Affairs Department of the International Monetary Fund. He was previously a freelance consultant specializing in fiscal regime analysis and negotiation for the petroleum and mining industry.
There are few areas of economic policymaking in which the returns to good decisions are so high – and the punishment of bad decisions so cruel – as in the management of natural resource wealth. Rich endowments of oil, gas and minerals have set some countries on courses of sustained and robust prosperity; but they have left many others riddled with corruption and persistent poverty, with little of lasting value to show for squandered wealth.
Realizing the potential value of natural resources is a challenge for several areas of economic policy. Macroeconomic policy needs to be sensitive to the potential impact on the non-resource part of the economy; budgetary arrangements need to accommodate the extreme volatility of commodity prices and ensure fair sharing of the benefits of resource wealth across the generations; and governance structures need to assure transparency of, and accountability for, the financial flows associated with them. Not least – indeed in many ways underlining all these other concerns – is the concern that this book addresses: fiscal arrangements need to ensure that governments take a share of the financial benefits (and costs) associated with natural resource exploitation that recognizes their ownership rights without adversely impacting the exploration and investment without which they have no value.
The International Monetary Fund has for many years paid close attention to the special challenges faced by resource-rich countries. Those relating to macroeconomic and budgetary management have long figured in our surveillance work and lending arrangements, and we continue to champion initiatives towards greater transparency in the extractive industries. And in our technical dialogues with resource-rich countries, the design of fiscal regimes has also been a central topic – an especially lively and active one in the last few years of high, and, more especially, volatile, commodity prices.
This book is one way in which the Fund seeks to take forward and promote such dialogue. The chapters were first presented at a conference on the topic organized by the Fund in September 2008, with generous support from the governments of Norway, the United Kingdom and Germany. The wide and lively participation that this attracted confirmed the growing interest in these issues, and the importance of both experience-sharing and analytical work in addressing them.
The purpose of the book is thus to provide policymakers, practitioners, civil society, academics and others working on the taxation of oil, gas, and minerals with a comprehensive but accessible account of the core issues in the area -which range from the conceptual to the very practical. There can be no complete answers, of course. But in drawing on an impressive array of the most respected and experienced experts in the area, we hope that this book will prove a useful guide for those struggling with the difficult but critical tasks of designing and implementing fiscal regimes in resource-rich economies.
International Monetary Fund