Profit shifting remains a key concern in international tax system debate, but discussions are largely based on aggregate estimates, with less attention paid to individual sectors. Drawing on a novel dataset, we quantify tax avoidance risks in the extractive industries, a sector which is revenue critical for many developing economies. We find that a one percentage point increase in the domestic corporate tax rate has historically reduced sectoral profits by slightly over 3 percent; and the response tends to be more pronounced among mining than among hydrocarbon firms. There is only weak evidence transfer pricing rules contain tax minimization efforts of MNEs in our sample, but interest limitation rules (e.g., thin capitalization or earnings based rules) do reduce the observable extent of profit shifting. Our findings highlight the challenge of taxing income in the natural resource sector and suggest how fiscal regime design might be strengthened.
This Selected Issues paper focuses on macro-critical issues related to governance and corruption in Democratic Republic of the Congo (DRC). Third-party indicators suggest that governance has been poor and corruption widespread in the country. Conducting an audit of the civil service and improving the transparency of its remuneration system, simplifying tax payment processes, and merging the activities of the numerous revenue agencies would boost public efficiency and improve the business environment. Contract enforcement and protection of property rights could be enhanced by insulating the courts from external influence. Limited information on the budget annexes and special accounts and little or no oversight by the central government, Parliament, and civil society, create scope for corruption. The multiplicity of special taxes and fees, some accruing to special accounts outside the Treasury, generate opportunities for corruption and informalization of economic activity. Despite some progress in strengthening public financial management, budget execution remains deficient. The government has formalized the four stages of the expenditure chain and introduced budget commitment plans to align expenditures with revenues.
In late 2015, the Chinese authorities launched a policy to reduce capacity in the coal and
steel industries under the wider effort of Supply-Side Structural Reforms. Around the
same time, producer price inflation in China started to pick up strongly after being trapped
in negative territory for more than fifty consecutive months. So what is behind this strong
reflation—capacity cuts in coal and steel, or a strengthening of aggregate demand? Our
empirical analyses indicate that a pickup in aggregate demand, possibly due to the
government’s stimulus package in 2015-16, was the more important driver. Capacity cuts
played a role in propping up coal and steel prices, explaining at most 40 percent of their
This Technical Assistance Report discusses the advice provided by the IMF staff to the authorities of Uganda regarding extractive industry fiscal regimes. As Uganda’s portfolio of projects diversifies in the oil sector, the minimum take could be adjusted to allow for possible bonus bids, and for higher shares in the most successful projects. The royalty design also needs to take account of new provisions for distribution of a portion to local governments. The cost recovery limit could be set at 70 percent after deduction of royalty. In addition to work program, either a signature bonus or an upper tier of production sharing should form the bid variable in the licensing round, with all other items fixed and non-negotiable.
This Technical Assistance Report discusses the advice provided by the IMF staff to the authorities of Uganda regarding implementation of fiscal regimes for extractive industries. The report considers options on how to conduct future licensing rounds, including possible bid variables and bid evaluation methods. It provides detailed comments on the draft model Production Sharing Agreement, along with simulations of its fiscal terms. The report also explains how crude oil price into the refinery is likely to be a negotiated outcome using the pipeline tariff as a guide.
This Technical Assistance Report evaluates the National Accounts Mission in Mongolia. Mongolia’s national accounts statistics were found to be broadly adequate for IMF surveillance according to the most recent IMF Staff Report. The National Statistics Office is commended for having compiled the existing GDP data and for continuing to implement the current international standard. However, several areas for further improvement in national accounts statistics should be incorporated into the work program. These include the need to secure the National Statistics Office’s new institutional structure and enhance its staff’s skills mix, improve coordination among stakeholders, and upgrade the survey forms currently in use in order to compile enhanced estimates of GDP.