Abstract
Resource rent and capital gains taxes are among the menu of fiscal instruments a resource-rich country may employ to derive its fair share of economic rents. These are mostly useful, particularly in times of resource price hikes and windfall profits or capital gains that may accrue to or derived by an investor from the realisation of a chargeable asset owned by the investor. This chapter explores the evolution of resource rent and capital gains taxes, highlights the underlying considerations for, and comparatively reviews the prevailing practice of introducing these types of taxes in a developing world context. The chapter makes useful recommendations to developing economies on how best to integrate resource rent and capital gains taxes into their fiscal regimes for the management of natural resources without compromising the optimal recovery of their natural resources.
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Notes
- 1.
Note, however, that non-renewable natural resources are the main endowment and revenue source of poor and fragile resource-rich countries in Africa and the rest of the Global South.
- 2.
Generally, fiscal instruments are categorised into profit-based taxes, linked to some measure of profitability (such as corporate income tax – CIT, withholding tax – WHT, royalties based on income/revenue, resource rent tax – RRT, and capital gains tax – CGT) and production-based taxes, assessed on output rather than linked to any measure of profitability (such as value added tax – VAT, import/excise duties, fees/bonuses, surface rents, royalties based on units/value, and state participation schemes).
- 3.
For a more nuanced discussion of the important dimensions of sovereignty to natural resource exploitation, see Ali-Nakyea et al (2023). ****The publication is not mentioned. Is it the one with Atuguba (2023), you and others?
- 4.
Which was established in 1969 and at the time the world’s largest open-pit copper/gold mine. The mine has been closed since 1989 and has ceased all production.
- 5.
The 1969 Panguna gold-copper mine agreement with Bougainville Copper Limited provided for very generous capital allowances and other tax incentives, including in particular a three-year tax holiday, indefinite shielding of 20% of the company’s income from any tax liability and a meagre 331/3% tax on income that exceeded a 15% return on the capital base.
- 6.
By introducing an Additional Profits Tax under which the after-tax profits of mines (and later oilfields) would be subject to additional taxation once a specified rate of return had been exceeded.
- 7.
Depending on the pre-defined “cumulative gross income” computed from the commencement of production, this tax ranged from 30% to 70% of the annual cash flow from the exploitation area which is deductible for income tax purposes (see Duval et al. 2009: pp. 241–242).
- 8.
Allowing an uplift of 30% on capital expenditures for computing the tax base, and proscribing the payment of royalty.
- 9.
Multiple tax requirements additional to the AOE are replete in the Petroleum (Exploration and Production) Act, 2016 (Act 919), the Petroleum Revenue Management Act, 2011 (Act 815), as amended, and the Income Tax Act, 2015 (Act 896), as amended.
- 10.
Alaska imposes tax on oil profits at 25%, subject to a 0.4% increase for every $1 rise in the oil price from a price of $30/barrel and above.
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Ali-Nakyea, A., Mohammed, N.A. (2024). Resource Rent and Capital Gains Taxes in Africa. In: Amidu, M., Ali-Nakyea, A., Abor, J.Y. (eds) Taxation and Management of Natural Resources in Africa. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-031-58124-3_7
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