Governments and citizens in countries rich in minerals understandably expect a ‘fair share’ of the economic benefits associated with the mining of their country's natural resources. In low and middle-income countries, it is especially important that the benefits of mining are realised – especially as natural resources are finite.
Economic benefits of mining
One way in which countries benefit from mining is from the revenues that governments receive in taxes and royalties. However, while important, taxes are only one part of mining’s overall contribution to host countries and communities. Data from ICMM research indicates that mining’s contribution to host economies is as follows:
- 50%–65% as capital investment and operating expenditure
- 10%–20% in salaries and wages
- 15%–20% as taxes and other government payments such as royalties
- 15%–20% as returns to local shareholders and financing costs
- 0.5%–1.0% in local community capacity building
What’s particularly striking is that mining’s contribution to government revenues is no less than the dividends returned shareholders. And that mining’s capital investment and operating expenditure – particularly when combined with wages – dwarfs both. This indicates that while government stewardship of its share of mining revenues is profoundly important, the value of developing skills and capabilities of local populations should not be underestimated. This is especially true if opportunities for the procurement of goods and services are to be realised.
The concept of fair share
Many different stakeholders are affected by the success or failure of a country’s mining policy, including workers, local communities, government at various levels, other businesses, and mining companies and their investors. Research has shown that people express greater satisfaction when they believe they are receiving a fair share, and reject situations where they believe the distribution of benefits isn’t equitable.
While pro-growth mining policies should increase the total size of a country’s economy, the resulting benefits may not be distributed in a way that benefits all stakeholders. And different stakeholders also have varying perceptions of what would represent a ‘fair share’.
Concerns relating to fair share inevitably manifest themselves in demands for higher taxes and/or royalties. However, this singular focus on taxes and royalties ignores the other factors that influence the resource competitiveness of countries – in particular production costs, fiscal regimes, and political risk. Governments that create a low political risk environment and develop good infrastructure in support of mineral investments are better placed to distribute benefits within the country without deterring investment.
With regard to sharing mineral revenues, ICMM believes that the most effective means of raising revenue and broadening the tax base is to have in place tax collection mechanisms that operate effectively across the existing tax base and ensure transparency over tax revenues. Without getting this fundamental capacity in place, the benefits of tax payments from mining and metals companies will be less pronounced.
Taxes derived from mining
The top 40 mining companies (a quarter of which are ICMM member companies) alone spent in excess of US$530 billion in 2014 on operating their mines. And another US$100 billion was spent on the purchase of plant and equipment. The impacts of such investments can be transformational. In Peru for example, over the past 10 years poverty levels have fallen by more than 30 per cent, largely attributed to a surge in investment by the mining industry.
While the amount of tax paid by each mining company differs substantially, as an industry, mining companies are making a significant contribution to national revenues. With the global tax payments of the top 40 mining companies, as estimated by the international accountancy company PwC, paying an effective rate of 44 per cent for the year 2016.
ICMM doesn’t have any specific programmes or commitments regarding taxation but we recognise that efficient, effective and transparent tax regimes are key to enhancing social and economic opportunities. We are also a strong supporter of the Extractive Industries Transparency Initiative (EITI), a global standard to promote open and accountable management of natural resources. Support for EITI is a requirement of ICMM membership.