International Monetary Fund (IMF), 2007, “Guide on Resource Revenue Transparency,” http://www.imf.org/external/np/pp/2007/eng/051507g.pdf
International Monetary Fund (IMF), 2012, “Fiscal Regimes for Extractive Industries: Design and Implementation,” Washington. www.imf.org/external/np/pp/eng/2012/081512.pdf
International Monetary Fund (IMF) and World Bank, 2014 (forthcoming), Natural Resource Revenue Administration Handbook (International Monetary Fund and World Bank, Washington).
Kidd, M, 2010, “Revenue Administration: Functionally Organized Tax Administration,” Technical Notes and Manuals, Fiscal Affairs Department, International Monetary Fund. http://www.imf.org/external/pubs/ft/tnm/2010/tnm1010.pdf
Sunley, E. and T. Baunsgaard, 2001, “The Tax Treatment of the Mining Sector: An IMF Perspective,” Background paper prepared for World Bank workshop on the taxation of the mining sector, April 4-5, 2001.
World Bank, 2011, Wealth of Nations database. http://data.worldbank.org/data-catalog/wealth-of-nations.
Prepared by Andrea Lemgruber and Scott Shelton, with inputs from Jack Calder. Based on the “Natural Resource Revenue Administration Handbook” (forthcoming). Dara Veung provided excellent research assistance.
NR revenues are receipts collected by governments from the NR sector through diverse tax and non-tax fiscal instruments. For example, NR revenues include “common” taxes, such as the corporate income tax and value added tax; special taxes on the sector, such as the resource rent tax; and other quasi-tax or non-tax instruments, such as royalties, profits, and bonuses. There is a wide variation across countries regarding which types of NR revenues fall under the legal competency of tax administrations. This issue is addressed in more detail in the section “How should a tax administration organize itself to manage NR taxation?” Overall, this note intends to provide good practices in dealing with whichever NR revenue is within a tax administration’s mandate.
This note does not specifically address non-NR tax administration issues, but it is important to highlight that establishing a modern tax administration should be the objective of any country. A sound tax administration allows both NR and non-NR revenues to be collected more effectively and efficiently. Indeed, fundamentals and core processes are the same, and the better a general tax administration framework, the easier it will be to collect NR taxes.
The broad choice of NR tax bases and rates should be regarded as primarily a policy issue rather than an administrative issue. Governments have to choose the most suitable mix of tax bases and tax rates to meet their particular economic tax policy objectives in terms of such issues as revenue, risk, competitiveness, and investment incentives. Ease of administration must be secondary to those broad economic objectives. However, the aim should be to meet these broad objectives without imposing unnecessary administrative complexity, and ease of administration should be an important consideration in the detailed design of the taxes chosen.
In many countries, regional and local governments play a major role in the regulation and taxation of industry, which may include the NR industry.
This view is well summed up in Kidd (2010), p. 2: “An effective organization is the basic platform from which all other procedural reforms are launched and maintained. Without the right organization structure in place, revenue administrations cannot operate effectively and their revenue efforts will be sub-optimal. Where function-based organizations have not been implemented, the extensive procedural and operational reforms needed to support modernization would likely be ineffective.”
This document deals with the specifics necessary to provide for the efficient and effective administration of NR revenues. However, there will be significant commonalities in the relevant processes and structures necessary for the effective revenue administration of all economic sectors. The development of specific processes for the NR sector should recognize the need for consistent treatment of all sectors and be used as a catalyst for positive change across the whole tax administration.
EITI is a global coalition of governments, companies, and civil society entities to improve the openness and accountable management of NR revenues. The section “How Can Transparency in NR Revenue Administration Be Enhanced?” provides more detail on this initiative.
Not paying refunds in a timely manner is a systematic problem in many NR rich-countries in sub-Saharan Africa, up to a point where more than 2 percent of GDP in outstanding arrears is accumulated. Recent IMF data (RA-FIT database) show that low-income countries refund, on average, only 7 percent of gross VAT, while in many advanced economies, this indicator can reach 40–45 percent (see also Harrison and Krelove, 2005). Tax administrations should realize that operating in a basis of gross VAT, rather than net VAT, despite inflating revenues in the short-run, is detrimental to the business environment and to the long-term tax compliance. The VAT should be refunded properly and in a timely manner, based on a risk analysis.