Day Three: Making the Most of Fiscal Instruments

Issue: Training
Country: International
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It’s 12.12.12 and the third day of the course. After yesterday’s invitation to tackle Excel – at least a quarter of the participants turned up! It turns out there is always something new to learn when it comes to spreadsheets: a new function, an even quicker way of applying formulas and other little tricks that help sort through even the biggest mess of information. Tomorrow, RWI's Matthew Genasci and David Manley of the Natural Resource Charter will be here again—and no doubt more will come.

Today is all about the different fiscal instruments available to resource-rich states. At any point, the state may wear up to four different ‘hats’: resource owner, tax collector, investor and mine operator. In each of these roles, the government will accrue different types of payments.

As a tax collector, the state collects at least five different taxes, including royalties, profits taxes and equity sharing. In addition, there are other taxes (tariffs, value added tax) and payments accruing from ownership of assets, whether passive or active interests (dividends, capital gains or direct profit interest). The mixture and level of payments depends on the objectives of the government’s policies, its attitude towards risk and administrative capacity, among others.

So why is it that so many countries struggle to benefit fully from the sector? There are many issues that governments must master to establish a watertight fiscal regime. There are issues of transfer pricing and amortization (depreciation) rules, as well as finding solutions for tax loopholes. Governments must also strike a balance between offering enough incentives to attract investment without losing too much themselves. Finally, they must have excellent negotiators on par with companies, and develop an overall mix that ultimately results in a ‘good’ deal.

Remember, most oversight actors are not economists, tax experts or investment analysts. For them to effectively oversee this sector, they must grasp these issues and understand the jargon. “Civil society must understand the technical language so that they are not intimidated in negotiations with their governments and companies,” said Alice Powell, Communications Officer of Publish What You Pay. “We often hear civil society actors comparing royalty rates, for instance Ghana has recently raised its royalty rate to 5 percent from 3 percent. But now we know that we have to ask more questions to truly understand the overall package. For example, what is the base rate? Using this knowledge we can deal with misinformation, and educate others to realize that things are not black and white.”

This is Robert Conrad’s last day with us. He is one of the founding technical group members of the Natural Resource Charter, RWI advisory board member and professor at Duke University, and has brought his immense expertise to bear over the last two days of the course.

“Usually at the end of these types of courses, we go our separate ways and that would be the end of it,” he said. “However, I don’t think doing so adds any value to my being here. I like to keep in touch and will respond to any questions you may have after the course. On any given day, I may get two or three e-mails from across the world. I enjoy this interaction and encourage you to take advantage of this invitation and get in touch.” Participants show their appreciation with a resounding round of applause.

Angela Mugore is RWI Senior Capacity Development Program Officer.

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