Minerals policy : taxation and domestic processing

Abstract

This thesis deals with government policies with respect to the taxation of mining industries and the domestic further -stage processing of minerals. It argues that often these policies are not supportive to the maximization of national welfare from a country's mineral resources. Mining taxation policies frequently distort decisions on exploration, mine establishment and mineral extraction. They also tend to result in the undertaxation of the profits on highly successful mines. Mineral processing policies usually do not take account adequately of the opportunity cost of resources devoted to processing activities. Policy-makers in the main do not consider the relationships between mining taxation and mineral processing policies. They fail to appreciate the effects of policies to promote the domestic processing of minerals upon the mining taxation revenue base. The thesis discusses optimal mining taxation policies, develops a framework for the appraisal of mineral processing projects and explores the relationships between mining taxation and mineral processing policies. Risksharing and incentive effects of the optimal mining taxation arrangements are examined and various complications and practical considerations are introduced which may necessitate modifications to the optimal arrangements. The framework for evaluating mineral processing projects incorporates shadow pricing rules which have been developed with typical informational constraints and the characteristic features of mineral processing projects in mind. Effects of various mineral processing policies on the mining taxation revenue base are identified and are included in the framework for evaluating mineral processing projects. A theory of comparative advantage in mineral processing is developed in order to help explain why some projects are found to make a net contribution to national welfare while others are socially unprofitable. The analysis is then applied in three case studies. Mining taxation arrangements and selected mineral processing projects in the Philippines , Papua New Guinea and Australia are evaluated and, where appropriate, proposals are made for the reform of mining taxation and mineral processing policies. Of the three countries studied, Papua New Guinea is found to have a well-conceived minerals policy. In contrast, there is large scope for improving mining taxation and mineral processing policies in the Philippines and Australia.