Revenue Implications of Export Tax Denomination in Developing Countries: The Case of Forestry in Papua New Guinea

The denomination of the resource export tax – in US dollars or local currency – has implications for the efficiency of a tax system (in terms of achieving a social equilibrium), the distribution of resource rents between government and private harvesters, and the government’s revenue base. These issues are important where industrial logging is undertaken and where substantial tax revenues are generated from the export of logs. The currency denomination of the export tax system determines the effect on revenue of a change in the US dollar price for timber. Moreover, the denomination – a policy choice – either exacerbates or ameliorates the combined revenue effects of market price change and currency movement. A Papua New Guinea case study illustrates how the denomination if log export tax in local currency ameliorated the effects of the Asian financial crisis on government revenues.