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LUC LERUTH, REMI PARIS, and IVAN RUZICKA

Honduras, state forestry revenue accounted for less than 1 percent of central government revenue in 1994, but stumpage prices increased by a factor of five in two years. In Cameroon. forestry taxes accounted for 3.5 percent of revenue in 1998-99. up from 2.5 percent three years earlier. 10 In the Philippines, total taxes on logs increased from 0.1 percent of revenue in 1989 to 0.4 percent in 1991 (World Bank, 1999b). Yet, in these and other cases, the impact on deforestation has been negligible. More radical economic remedies were also envisaged, including outright

Mr. Saji Thomas and Mr. Arnim Schwidrowski
Countries generally tax the forestry sector to achieve the twin objectives of revenue maximization and sustainability of logging levels. In an ideal world of perfect markets and information, auctions would be the best instrument to determine the price of extraction rights. However, a number of factors-including a lack of information on the forest resources under consideration, uncertainties as to the stability of property rights over time, and a lack of access to credit-have limited the use of auctions so far, particularly in low-income countries. To establish transparency of the forestry sector's financial flows, this paper discusses a radical simplification of Liberia's current timber tax structure, including a proposal to reduce the sector's current tax system to two instruments, an area tax and an export tax.
Mr. Saji Thomas and Mr. Arnim Schwidrowski

Front Matter Page African Department Authorized for distribution by Edouard Maciejewski Contents I. Introduction II. Liberia’s Timber Sector A. Evolution of Liberia’s Timber Sector B. Liberia’s Timber Revenue System III. Why Are Forestry Taxes Different from other Taxes? IV. Assessment of Fiscal Instruments Used in Forestry Sector V. An Interim Proposal for Timber Taxation References Tables Table 1. Advantages and Disadvantages of Forest Taxes and Fees Figures Figure 1. Flow of Timber Through the Forest Sector and

International Monetary Fund

with respect to interest costs and commissions. Third, while significant progress has been made in centralizing revenues at the treasury, forestry tax revenues (which represent about 6 percent of non-oil revenues) have yet to be transferred to the treasury. The government plans to rapidly take corrective actions on all these measures. 3. On the basis of the broadly satisfactory implementation of the SMP through end-April, the staff initiated negotiations in May 2004 on a program that could potentially be supported by a new three-year arrangement under the Poverty

Mr. Oscar E Melhado Orellana

pace of felling to keep the resource sustainable and incorporates an inventory of the stock, a zoning map defining principal roads and areas for annual felling, the duration of the rotation, and a list of the exploitation units. 12 Forestry tax arrears during 2004-07 are about CFAF 10.7 billion for the area tax and 7.4 billion for the stumpage tax. The government is taking measures to accelerate the rate of recovery of tax arrears, among them introducing retention rates. 13 Only the big companies, which are mainly foreign–owned, have adopted management

International Monetary Fund

restructuring and privatization of Air Gabon and Gabon Télécom experienced significant delays. After a strong start in 2004, delays continued to plague the reforms of the forestry sector, reflected in the persistence of large forestry tax arrears and uncertainty regarding the future allocation of forestry permits. However, reforms in the natural resources sector were boosted by the publication of Gabon’s first report under the Extractive Industries Transparency Initiative in December 2005. A tender for 51 percent of Gabon Télécom was finally launched in early December with

Oscar Melhado

much forestry products as Gabon, forestry taxes in 2003 brought about CFAF 40 billion, compared to CFAF 33 billion for Gabon. Before going to other rounds of tax design, it is crucial to consolidate revenues from this reform by strengthening control mechanisms and collecting tax arrears. It is not feasible in the short run to substitute the stumpage and area taxes for the export tax. A gradual phasing out of the export tax on logs has been recommended because the tax distorts incentives, penalizing exports in favor of domestic processing. However, the stumpage tax

International Monetary Fund

background of the recent favorable oil price developments. Against this background, Directors stressed the importance of strengthened policy implementation to demonstrate a firm and lasting commitment to macroeconomic stabilization and structural reform. While noting some improvement in the conduct of fiscal policy, Directors emphasized the need to address the significant weaknesses remaining in both revenue-generating capacity and expenditure management. In this regard, they noted the worrisome backtracking on the forestry tax reform included in the program, and urged

Mr. Oscar E Melhado Orellana
This paper reviews forestry reform in the Congo basin, focusing on Gabon. It argues that the key challenge for the Congo basin countries is to manage their forests in a sustainable manner. It presents the current situation of forestry taxation and forestry reform in Gabon. The paper analyzes optimal taxation in the forestry sector using a static model. The model works from the proposition that tax policy should be used exclusively for revenue purposes and resource preservation should be achieved mainly through legislation and enforcement. It argues that when prices are uncertain the best practice is to tax only profits.