ICMM Members' Tax Contribution: Focusing on corporate income tax and royalties (2018)

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Countries that are rich in natural resources will benefit from the revenues arising from taxes and royalties as the metals and minerals are mined. For less developed countries, this source of income is particularly important.

In a cyclical industry with volatile commodity prices, the contribution through taxes and royalties from the mining sector will vary from year to year. This report looks at the tax and royalties paid by the largest ICMM members over
the last five years. In that time, taxes (excluding deferred tax) and royalties
charged to the income statement amounted to $109bn, 43 per cent of profits
(adjusted for impairments).

There are calls for the mining sector to make a greater contribution to the public finances, with a focus on royalties. Production royalties are paid even if there is no profit and allow governments to receive income before investment is recovered and profits are made. The rate of production royalty is important to ensure that, overall, taxes are not paid too early in a project’s life to risk its economic appraisal. Well designed royalties can result in a better balance of risk sharing between the mining sector and governments.

In addition to the significant contribution to public finances, the mining sector creates value in many other ways. Through job creation and rewarding local employment opportunities, demand for local services, investment in education and health, and procurement of locally sourced materials, the mining sector changes lives and brings dignity to thousands of employees and the people we contract with for goods and services. Growth of the sector through new investment will sustain this and improve living standards in some of the poorest countries in the world. Corporate income tax and royalties reform should not impede this opportunity for growth and risk value erosion for all stakeholders.

The mining sector and governments should work together as one to ensure that where reforms are necessary the tax mix is optimised so as not to jeopardise future investment. Genuine consultation on options and trade offs for reform will improve confidence and result in better and more sustainable reforms. When the environment changes materially, it is in the interests of the mining sector and governments to work together as partners. We should seek solutions together that bring confidence for more predictable revenue for governments and a safe footing for the mining sector to consider further investment without undermining earlier investment decisions.

Tom Butler CEO
December 2018