Friday, February 27, 2015

Colombian mining tax regime counterproductive to investment, profit

The Colombian mining tax regime has imposed a significantly high tax burden on marginal investments in mining, discriminated across minerals and it was counterproductive to project profitability, pointing to a need to improve the country's mining tax regime.
This was according to a report released on Thursday by researchers from the Universidad de los Andes, in Colombia, and the School of Public Policy at the University of Calgary, in Canada.
The report also included a comprehensive comparison of the Colombian fiscal regime with those of other Latin American countries that had significant mining industries.
Report authors Duanjie Chen of the School of Public Policy and Guillermo Perry, a former Colombian minister of finance and public credit, and minister of mining and energy, argued that the existence of differential royalty rates by mineral, based on the gross value of sales at mine mouth, were in some cases inordinately high, representing a large fraction of total government revenue from mining.
For these same reasons, the actual regime taxed most mines excessively during periods of low prices, while failing to capture a significant part of net revenues in periods of high prices.
To deal with these deficiencies, the report recommended the introduction of a resource rent tax and the reduction of royalty rates to a common 5% across minerals.
In doing so, the Colombian mining tax regime could gain significantly in efficiency and competitiveness compared with other mining countries, while augmenting revenues during price booms, when operational margins increased sharply, especially from the most profitable mature mining projects.
Overall, this reform would make the tax regime more neutral, lower administrative costs and make Colombia more competitive and attractive to investment, while also preserving a reasonable revenue stream to the government and people of Colombia.
The country currently had the largest coal reserves in Latin America and was second to Brazil in hydroelectric potential. The country also had significant reserves of oil, nickel and gold.
As a share of the country's gross domestic product, mining increased from less than 1.8% before 2000 to about 2.3% from 2005 onwards. Mining exports rose from about 10% of total exports in 2000 to a peak of 25% in 2009 and had remained above 20% since then, both owing to increased production and high export prices.
By: Henry Lazenby at Mining Weekly