IMF Consultation on Natural Resources Management and Taxation

19 April 2012 | Minutes

Meeting 11:00 – 12:30, Wednesday 18 April

Presentations by IMF staff and respondants

  • Dhan Ghura, IMF

Big Questions

  • How much resource wealth should be saves?
  • Should investment be in domestic economy or abroad?
  • How to deal with volatility? Ensure not undermine economic stability and efficiency of government spending?
  • Role of resource funds?
  • Is the permanent income hypothesis useful to answer the above questions?


  • Generational distribution, capital market access, poverty, rate of return on investment, capacity of government
  • Philip Daniel, Fiscal Affairs Department, IMF
  • Paper for the board on taxation of natural resources wealth is coming
  • Context: volatility in prices with upward shift, potential for new transformative projects
  • Resource wealth are special because of size, tax revenue, high sunk costs, long production
  • Questions:
  • Are the extractives industry rents taxed appropriately at present? Are the right instruments used?
  • Difference between mining and oil?
  • Is administration and legal framework correct, including transparency?
  • Is there a right level of taxation?
  • IMF approach now: terms must be robust, progressive (increasing taxes as profitability increasing); law or public contracts ideal; limit special incentives; minimise aggressive tax planning; take account of risk bearing capacity
  • Royalties versus rent taxes
  • Ian Gary, Oxfam
  • Consider more carefully decision to extract, with broader cost-benefit analysis, need careful “free, prior and informed consent”; Pacing question is really important, especially for new finds
  • Tax administration is low-hanging fruit, governance problem in the tax system, audits
  • Transparency of contracts is key, but also transparency of audits, payments, etc – IMF can use conditionality to do this
  • No one answer on a fair take, but top 5 oil companies have $135 billion in profits in 2011; ADB report says governments not doing enough to tax mining; bad deals are not sustainable – need TA to regional bodies
  • Roger Nord, Africa Department, IMF
  • African countries clearly want to do better than in the past, but want a “fair” share
  • Strong desire for present consumption because of enormous needs
  • Constraints from macroeconomic problems of scaled up spending; absorptive capacity
  • African countries agree transparency and good governance are important, sign up to EITI
  • Like an idea of TA in a regional context, ie work in WAEMU for harmonization


  • How do you get citizens at the table even when government is getting a “fair” share? How to get revenue into the citizens’ hands?
  • What about environment and social aspects of resource exploitation – what kind of safeguards?
  • What about the social impacts of decision to save versus invest?
  • What percentage of total is new versus existing contracts?
  • How will you work with the World Bank since they are perceived to promote special incentives and low royalties?
  • How can taxation mechanisms support more value-added industrial development for processing of natural resources?
  • FDI – how can countries use their own currencies for investment?
  • Difference in tax breaks between MNCs and SMEs, different taxation based on scale?
  • Social impacts – health and livelihoods hurt; in mining areas people’s situation is worse?


  • Philip:
  • Caution on the regional context, minimum royalties in the regional environment might exclude projects in some countries – so be careful
  • What about the tax rates for normal citizens, direct dividends have been problematic
  • Env/social impacts – not the focus of the two papers, that is WB; env/soc costs should be internalised in the projects and give appropriate tax treatment; also need to apportion costs of clean up and community development as well
  • I advise against focus on value-added, if already dependent on natural resource, processing makes you more dependent; better to diversify economy than give tax incentives
  • Contract arrangements can worsen social impacts because of insecurity if tenure
  • On community/environment – the World Bank has been doing a very good job
  • Dhan
  • Transparency is critical to get citizens involved, we have conditionality on this in programmes
  • Governments must consider distribution of taxation burden across sectors, also across income distribution; we discuss these trade-offs with authorities
  • Because of assumed growth, makes sense to bring forward development spending
  • Governments are concerned about inflationary impact of ramping up investment
  • Roger
  • Don’t know the breakdown of new and old contracts, very long contracts are there
  • No impression that Fund and WB have different advice
  • Gary
  • Decision to extract is important because of the social impacts