The taxation of natural resources : principles and policy issues

Natural resources are typically subject both to taxation under the income tax system and to special resource taxes. Properly designed income taxes attempt to include capital income on a uniform basis. But in most countries the income tax treats resource industries more favorably than most other industries - through favorable treatment of such capital expenses as depletion, exploration and development, and the cost of acquiring resource properties. The case for special resource taxes is precisely to tax resource rents over and above the levies implicit in general income taxes. There are two justifications for this: (a) the efficiency-based argument that a tax on resource rents is nondistorting and complementary; and (b) the equity argument that the property rights to resources ought to accrue to the public at large rather than to private citizens since the rents represent the bounty nature has bestowed on the economy rather than a reward for economic effort. If the main purpose of a resource tax is to capture rents for the public sector, the base of resource taxes should be economic rents (or their present value equivalent), contend the authors. Actual resource taxes differ from rent taxes in significant ways. Unlike a general income tax - which allows the resource industries to understate capital income - resource taxes often overstate rents. This is because they typically do not offer full deductions for all costs, especially capital costs. Some systems tax revenues without allowing any deductions for costs; others allow the deduction of current costs only. As a result, they discourage investment activity in resource industries, encourage the exploitation of high-grade relative to low-grade resources, and make it difficult to impose high tax rates for fear of making the marginal tax rate higher than 100 percent. The authors discuss three alternative ideal ways for the government to divert a share of rents to the public sector: levy a tax on rents, ideally in the form of a cash flow tax; require firms to bid for the rights to exploit resources; and take a share of equity in the firm. They discuss these options in terms of their implications for the ability of firms to obtain finance, the allocation of risk, the share of rents accruing to the public sector, the extent of involvement of foreign firms, and other factors. The time has come in many countries, they say, when gains from further refinement of imperfect existing taxes on resources are less than replacing them with simpler, more efficient forms of pure rent taxes.Environmental Economics&Policies,Public Sector Economics&Finance,Economic Theory&Research,Banks&Banking Reform,Tax Law

Factor Accumulation, Tariffs and Immiserizing Growth

International trade theorists recently have rediscovered a possibility, pointed many years ago by F.Y. Edgeworth, that growth in an open economy might actually decrease the welfare of the community. According to Bhagwati, immiserization could occur as the result of growth only in the presence of non-optimal policies. In the first case, where the terms of trade could be affected by the actions of the home country, the appropriate policy would be to impose an optimum tariff at all points in time. In the second case, where the country was so small that it could not affect the terms of trade, the optimal policy would be free trade. The purpose of this paper is to derive conditions for the occurence of immiserization due to factor accumulation, first in the sense of declining aggregate real incomes (section 1) and second in the sense of declining per capita incomes (section 2).

REFORM OF INDIRECT TAXES FOR ZAMBIA :ADMINISTRATION AND POLICY

Indirect taxes currently account for more than 50 percent of the government of Zambia’s non-capital recurrent revenues. For 1990, it is estimated that customs duties accounted for about 25 per cent of total indirect taxes, with import sales amounting to 34 per cent, local sales taxes 18 per cent, and excise taxes raising 23 per cent. There are many positive aspects to the current situation of the customs, excise and sales tax systems. A significant rationalization of the tariff structure has been implemented this year. There are only two rates of import sales taxes (20 and 0 per cent). Basically a value added tax type of administration is used to integrate the sales taxes on imported and locally produced goods at the manufacturer’s level. While the administrative procedures could be significantly streamlined and modernized, the fundamentals in terms of available personnel and the current plans of senior management to simplify and strengthen the sales tax system is an excellent basis for moving forward.Indirect Taxes, reform, administration, policy, Zambia