The taxation of natural resources : principles and policy issues
AbstractNatural resources are typically subject both to taxation under the income tax system and to special resource taxes. Properly designed income taxes attempt to include capital income on a uniform basis. But in most countries the income tax treats resource industries more favorably than most other industries - through favorable treatment of such capital expenses as depletion, exploration and development, and the cost of acquiring resource properties. The case for special resource taxes is precisely to tax resource rents over and above the levies implicit in general income taxes. There are two justifications for this: (a) the efficiency-based argument that a tax on resource rents is nondistorting and complementary; and (b) the equity argument that the property rights to resources ought to accrue to the public at large rather than to private citizens since the rents represent the bounty nature has bestowed on the economy rather than a reward for economic effort. If the main purpose of a resource tax is to capture rents for the public sector, the base of resource taxes should be economic rents (or their present value equivalent), contend the authors. Actual resource taxes differ from rent taxes in significant ways. Unlike a general income tax - which allows the resource industries to understate capital income - resource taxes often overstate rents. This is because they typically do not offer full deductions for all costs, especially capital costs. Some systems tax revenues without allowing any deductions for costs; others allow the deduction of current costs only. As a result, they discourage investment activity in resource industries, encourage the exploitation of high-grade relative to low-grade resources, and make it difficult to impose high tax rates for fear of making the marginal tax rate higher than 100 percent. The authors discuss three alternative ideal ways for the government to divert a share of rents to the public sector: levy a tax on rents, ideally in the form of a cash flow tax; require firms to bid for the rights to exploit resources; and take a share of equity in the firm. They discuss these options in terms of their implications for the ability of firms to obtain finance, the allocation of risk, the share of rents accruing to the public sector, the extent of involvement of foreign firms, and other factors. The time has come in many countries, they say, when gains from further refinement of imperfect existing taxes on resources are less than replacing them with simpler, more efficient forms of pure rent taxes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1210.
Date of creation: 31 Oct 1993
Date of revision:
Environmental Economics&Policies; Public Sector Economics&Finance; Economic Theory&Research; Banks&Banking Reform; Tax Law;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Engel, Eduardo & Fischer, Ronald, 2008.
"Optimal Resource Extraction Contracts under Threat of Expropriation,"
34, Yale University, Department of Economics.
- Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts Under Threat of Expropriation," Working Papers 960, Economic Growth Center, Yale University.
- Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Cowles Foundation Discussion Papers 1636, Cowles Foundation for Research in Economics, Yale University.
- Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts Under Threat of Expropriation," NBER Working Papers 13742, National Bureau of Economic Research, Inc.
- Eduardo Engel & Ronald Fischer, 2008. "Optimal resource extraction contracts under threat of expropriation," Documentos de Trabajo 244, Centro de Economía Aplicada, Universidad de Chile.
- Eduardo Engel & Ronald Fischer, 2008. "Optimal Resource Extraction Contracts under Threat of Expropriation," Levine's Bibliography 122247000000001833, UCLA Department of Economics.
- Julien Daubanes & Pierre Lasserre, 2012.
"Optimum Commodity Taxation with a Non-Renewable Resource,"
CIRANO Working Papers
- DAUBANES, Julien & LASSERRE, Pierre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," Cahiers de recherche 03-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CIRANO Working Papers 2011s-05, CIRANO.
- Julien Daubanes & Pierre Lasserre, 2011. "Optimum Commodity Taxation with a Non-Renewable Resource," CER-ETH Economics working paper series 11/151, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Boadway, Robin, 2005. "Income tax reform for a globalized world: The case for a dual income tax," Journal of Asian Economics, Elsevier, vol. 16(6), pages 910-927, December.
- Patrick Gonzalez, 2013. "Taxing a Natural Resource with a Minimum Revenue Requirement," Cahiers de recherche CREATE 2013-6, CREATE.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.