The Future of Resource Taxation

The report examines the limitations of traditional mining taxation—primarily corporate income tax and royalties—and suggests ten alternative policy mechanisms to improve revenue mobilization. These include minimum profit shares, production sharing contracts, state equity participation, commercial state-owned enterprises, variable royalties, the 'Sixth Method' for related-party pricing, carbon pricing to mitigate EU CBAM impacts, development turnover taxes for communities, competitive bidding for licenses, and remote monitoring for quarry production. It emphasizes the need for these tools to be adapted to local administrative capacities and the evolving demand for critical minerals.

• Traditional mining fiscal regimes, relying on corporate income tax (CIT) and royalties, often fail to deliver expected revenues due to aggressive tax planning, weak governance, and overly generous incentives. The IMF estimates that African countries lose up to USD 730 million annually in mining revenue from tax base erosion and profit shifting (BEPS).
• The transition to a low-carbon economy is driving increased demand for critical minerals like lithium, cobalt, and copper, providing a unique opportunity for developing countries to rethink domestic resource mobilization. However, there is a risk of over-reliance on these minerals due to potential technological substitutions or circular economy policies.
• Automation in mining is reducing the number of low-skilled jobs at mine sites, which traditionally served as a core benefit for host countries. This shift necessitates a greater role for government revenues to maintain the social and political viability of mining.
• A 'Minimum Profit Share' mechanism, as seen in Tanzania, the Philippines, and Ecuador, can act as a floor for government revenue. Analysis suggests that regimes setting a floor without a ceiling (like the Philippines and Ecuador) are more effective at capturing windfall profits and reducing tax avoidance risks than those with a ceiling (like Tanzania).
• Production Sharing Contracts (PSCs), common in oil and gas, can be adapted for mining to increase state control and revenue. PSCs are potentially more robust against profit shifting because they rely on observable production rather than reported net profits, and they often disallow the deduction of interest expenses.
• State equity participation allows governments to receive dividends and participate in project upsides. While 'free carried interest' is common in Africa, the report notes that dividends are often delayed or not guaranteed, making equity an unreliable primary revenue source.
• Commercial State-Owned Enterprises (SOEs) can help countries regain ownership of strategic minerals and increase revenues through dividends. However, they are prone to political interference, lack of transparency, and inefficiency if not managed by professional, independent boards.
• Variable royalties, which adjust based on mineral prices or profitability, are more flexible than fixed-rate royalties and less regressive. They can stabilize fiscal regimes by reducing the need for frequent legislative changes during price cycles.
• The 'Sixth Method' simplifies the pricing of related-party mineral sales by using quoted prices from exchanges (e.g., London Metals Exchange) with minimal adjustments. This reduces the administrative burden of the arm's-length principle and limits underpricing by multinationals.
• The EU's Carbon Border Adjustment Mechanism (CBAM) may negatively impact mineral-rich developing countries by taxing imports based on carbon emissions. To avoid paying these levies to the EU, the report suggests these countries introduce their own carbon taxes, which are generally easier to administer than emissions trading systems (ETS).
• A proposed 'Development Turnover Tax' (0.5%–3% of turnover) would compel mining companies to invest in public shared infrastructure or pay into a government-administered fund. This ensures that local communities receive direct benefits regardless of the mine's reported profitability.
• Competitive bidding for mining licenses can increase government revenues through signature bonuses and auction premiums, while reducing corruption and 'concession sitting' by weeding out unqualified investors.
• Fiscal stabilization clauses in mining contracts often lock in outdated and unsustainable terms. The report advocates for a shift toward 'responsive' fiscal regimes that adjust based on profitability and price changes, as recommended by the OECD.

APA

Readhead, A., Tarus, V., Lassourd, T., Madzivanyika, E., & Schlenther, B. (n.d.). The Future of Resource Taxation. International Institute for Sustainable Development. https://www.iisd.org/system/files/2023-06/future-of-resource-taxation-en.pdf

Chicago

Readhead, Alexandra, Viola Tarus, Thomas Lassourd, Ezera Madzivanyika, and Bernd Schlenther. The Future of Resource Taxation. International Institute for Sustainable Development, n.d. https://www.iisd.org/system/files/2023-06/future-of-resource-taxation-en.pdf.

Wikipedia

{{cite report |last1=Readhead |first1=Alexandra |last2=Tarus |first2=Viola |last3=Lassourd |first3=Thomas |last4=Madzivanyika |first4=Ezera |last5=Schlenther |first5=Bernd |title=The Future of Resource Taxation |publisher=International Institute for Sustainable Development |url=https://www.iisd.org/system/files/2023-06/future-of-resource-taxation-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{readheadndfuture, author = {Readhead, Alexandra and Tarus, Viola and Lassourd, Thomas and Madzivanyika, Ezera and Schlenther, Bernd}, title = {{The Future of Resource Taxation}}, institution = {International Institute for Sustainable Development}, url = {https://www.iisd.org/system/files/2023-06/future-of-resource-taxation-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }