oluca fiscal regimes for extractive industries bkk...
TRANSCRIPT
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Fiscal Regimes for Extractive Industries (EI): Objectives, Tools and Design Principles
OANA LUCA (IMF/FAD)
BANGKOK
DECEMBER 7, 2016
EI provide a key revenue source
for (increasingly) many countries… … including in the Asia-Pacific region.
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Why distinct fiscal regimes for EI?
Substantial rents
Pervasive uncertainty ….
Asymmetric information
High sunk costs, long production periods
Extensive involvement of multinationals in some countries…
….. and of State-Owned Enterprises in others
While few of these considerations are unique to resources, they are just bigger. What is unique is Exhaustibility — recognize revenues as transformation of finite assets in the ground into other assets.
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25
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US$
per
bar
rel
WEO Oil Price Forecasts 2002-2019(Monthly prices, 2014 U.S. Dollar per Barrel)
Sep 2004
Sep 2011
Oct 2008
Oct 2009
Oct 2007
Sep 2006
Sep 2005
Oct 2012
Sep 2013
Oct 2014
Oct 2010
Jan 2015
Oil price forecasts and outturns
Central objectives for EI fiscal regimes
Ensure State as resource owner gets an ‘appropriate’ share
Fiscal terms must be robust in the face of changing circumstances
Consistent with countries of similar prospectivity
Encourage development of all viable discoveries
Easy administration (for authorities) and compliance (for taxpayers)
Establish by law… minimize discretionary and negotiated elements
Stability and credibility
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Main fiscal schemes
Contractual, including production sharing or service contracts
Tax and royalty, with licensing of areas
State ownership or participation
These schemes are sometimes blended in practice…
… can be made fiscally equivalent
… and designed to achieve efficiency and transparency in each case.
Fiscal instruments for EI
The fiscal regime consists of a combination of such instruments.
• Land rental / surface fees• Bonuses (signature or production)Fixed payments
• RoyaltiesProduction/turnover - based
• Corporate income tax• Explicit rent tax / additional profit taxes• Profit sharing
Profit/rent - based
• Full / carried participationState participation
• Dividend and interest withholding taxes• Indirect taxesOthers
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Fiscal regime design: recommended approaches
Country circumstances require tailored advice, but generally within a framework that combines
A royalty on gross revenue
A tax targeted explicitly on rents (and thus on the achieved results of extraction)
Together with normal corporate income tax
Bonus-bidding may have a role in promising environments
Such regime ensures revenue from day one and that government revenue rises as rents increase.
Evaluation is essential…
An often-used approach is scenario analysis.
The IMF Fiscal Analysis of Resource Industries
(FARI) modeling system
Uses indicators related to objectives and criteria, such
as average effective tax rate (AETR) and
progressivity.
http://www.imf.org/external/np/fad/fari/
- 20% 40% 60% 80% 100% 120%
RussiaArgentina
Indonesia ; 2011 DWColombia: Roy + Tax
Sri Lanka ; Mannar basinNorway ; Offshore
Vietnam ; 2010 incentive 0%…Azerbaijan
Timor-Leste ; TL_BUUK 2011
Peru : 1993 -1995Malaysia ; Deep Water + 20%…
Nigeria PSCThailand ; TH_III (excl. SRB)
Australia ; PRRTUSA : OCS
Brazil: OnshoreMexico ; Special regime
POLAND ; Current Regime
Average Effective Tax Rate (AETR)
Marg
inal
No
t viab
le
Field: Oil field
Size: 809 MMBOE
Costs: $26.1 BOE
Oilprice: $100 Bbl
IRR pre tax: 30%
Project Description
Discount Rate: 10.0%
Oil regimes: fiscal comparison
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… as is administration and transparency.
Administration
EI tax administration should not be hard in principle
Nonetheless, often both difficult and badly done
Claims that administration of profit/rent-based EI taxes is too hard, and that countries should rely on royalties, are misplaced
Principles of effective modern tax administration are equally relevant to EI
Transparency
Transparency in fiscal regime design and implementation is vital but often lacking
IMF Guide on Resource Revenue Transparency, Extractive Industries Transparency Initiative (EITI)
IMF (FAD) TA actively engaged and research-based
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Thank you