MAC: Mines and Communities

To tax - or not to tax?

Published by MAC on 2011-03-28
Source: Reuters, Business News Americas

Questions from Peru & South Africa

For Peruvians, to tax or not to tax is indeed an important question, but certainly not the only one. With upcoming presidential elections just 2 weeks away, many questions are raised about what the extractive industries should look like in Peru.

MAC member, CooperAccion, together with 16 other Peruvian NGO’s held a public forum on March 23 and 24 on "Alternatives to Extractivism". The forum pointed out that "socio-environmental conflicts require urgent public policy proposals. Peruvians need a new agreement of governance (social, environmental and economic) to properly regulate and monitor the exploitation of natural resources and investment."

The public forum invited presidential candidates to answer the question: How are the socio-environmental conflicts reflected in your government programs?

For more information on the forum (including a question guide for voters) see:

In South Africa, to tax or not to tax, is also just one of the many questions. Enoch Godongwana, deputy minister for economic development, suggests that "we must catch up with the commodity boom" and raising taxes is one of the options being examined by the National Executive Committee of the ANC party.  For Godongwana, they need to determine what is the best model to ensure that South Africans share in mineral wealth and stop getting a "raw deal".

Peru's presidential hopefuls split on mining taxes

By Caroline Stauffer and Teresa Cespedes


18 March 2011

LIMA, Peru - Leading candidates in Peru's tightening presidential race are split over whether mining companies in one of the world's top mineral exporters should pay higher taxes.

Front-runner and former President Alejandro Toledo says Peru should consider taxing windfall profits from surging global commodities prices to help finance anti-poverty programs. Leftist Ollanta Humala, who is in fourth place, also wants to raise taxes.

The country's association of mining companies has criticized the candidates for making "populist promises." Miners say higher taxes would threaten some $42 billion in foreign investment planned over the next decade in a sector that has long been the engine of growth in Peru's economy, which expanded 9 percent last year.

The other three main candidates in the April 10 election -- lawmaker Keiko Fujimori, former Lima Mayor Luis Castaneda, and former Prime Minister Pedro Pablo Kuczynski -- have said changing tax rules would be a bad idea for Peru, which is a leading producer of gold, silver, copper, zinc and lead.

Toledo, who negotiated the U.S.-Peru free trade agreement during his 2001-2006 presidency, has said Peru's mining towns are not seeing the benefits of higher commodities prices.

"Obviously we need to take advantage of this price bonanza to get more resources for a state with many needs and a low tax collection rate compared to other countries in the region," said Jaime Quijandria, a former mining minister who is part of Toledo's economic team.

But Kuczynski, a former Wall Street banker who years ago was Peru's mining minister, said windfall profits are cyclical, making them unreliable as a source of revenue.

"That is not the right strategy," Kuczynski, who is rising in polls but still in fifth place, told Reuters. He said mining companies already generate 60 percent of all income taxes paid by businesses in Peru but represent only 7 percent of the economy.

"Even less so if so-called windfall profits are supposed to finance everyday expenditures such as education and security ... we just saw copper prices fall 10 percent in one day -- where are the windfall profits there?," he said.

Ultranationalist Humala, who has moderated his tone since nearly winning the 2006 election on a platform endorsed by Venezuelan President Hugo Chavez, says the state should raise taxes on mining companies' profits to more than 40 percent from 30 percent.

Though Humala lagged earlier in the campaign, the latest polls show him on the heels of Fujimori and Castaneda, giving him a chance of making it to a June 5 runoff. He also favors raising royalties on oil and gas producers.

Castaneda, who was once the favorite but has slipped to third as he is dogged by corruption allegations he has denied, says Peru should protect investment by ensuring contractual stability for mining companies.

Fujimori, daughter of jailed former President Alberto Fujimori, has indicated her policies would follow those of her right-wing father and says she would "maintain the rules of the game" for investors. (Editing by Terry Wade and Mohammad Zargham)

'Raw deal' SA looking at mine tax overhaul


17 March 2011

South Africa is thinking about overhauling its minerals royalties regime to cash in on high commodity prices and may use Australia's controversial resources tax as a template, a Minister said on Thursday.

"We South Africans are getting a raw deal," Enoch Godongwana, deputy minister for economic development, told Reuters on a visit to Australia.

Godongwana, a key figure in economic policy-making, took aim at the mining companies that dominated the economy for much of the 20th century, accusing them of making super-profits out of the soaring price of metals such as gold, platinum and chrome.

South Africa is the world's biggest platinum producer and number three gold producer, although output is declining.

"They have taken the wealth, they've taken the gold, they've taken everything," he said. "The problem is the golden eggs are not being shared. We must be able to catch up with the commodity boom."

Similar pressure last year in Australia led to a government push for a 40% minerals tax on the massive profits being made by mining companies, although this was watered down to 30% after a huge corporate backlash.

However, Godongwana said such a move was one of several options being examined by the National Executive Committee of the ruling African National Congress (ANC) party.

"I can't rule that out. We are exploring different possibilities and what will suit our own circumstances," he said, when asked if South Africa might go down the Australian route.

So far, the ANC has not consulted mining companies on the issue, he said.

Australian miners, including sector heavyweights BHP Billiton and Rio Tinto, unleashed a barrage of anti-tax advertisements and lobbied politicians to have the tax modified before meeting to hammer out a more palatable levy.

It still must pass through the parliamentary approval process before its mid-2012 introduction date.

Despite South Africa's vast mineral wealth, its mining sector is in decline due to a mixture of dwindling gold reserves and a lack of investment stemming from uncertainty over govermment policy towards the sector and soaring energy costs.

The ANC was still months if not more away from making any decisions, Godongwana said, although given the cyclical nature of commodities markets, the government would like to see a policy in place as soon as possible.

Raising the pressure on the mining companies, radical elements in the ANC are calling for outright nationalisation of the sector although Godongwana reiterated that it was not government policy.

"What is the best model we need to develop to ensure that South Africans share in mineral wealth? That is yet to be determined," he said.

"We are not going to take something off the shelf and simply translate it to South Africa. We need to take a model and modify it to our own circumstances."

Miners unlikely to see major tax changes under new president - Hochschild CEO - Peru

29 March 2011

Ryan Dube

Business News Americas

Mining companies in Peru are unlikely to see any major changes in taxes in the upcoming government despite campaign rhetoric from presidential hopefuls, according to the CEO of local precious metals miner Hochschild, Ignacio Bustamante.

"We are in the middle of an election process and the reality is that talking about [taxes] is something that is quite popular," Bustamante said during a webcast with analysts and investors.

In the 2006 campaign, current President Alan García talked about hiking taxes on miners but after winning the election he met with miners and agreed to implement a voluntary contribution system.

"The reality is that mining is the largest contributor to the government and the largest source of foreign investment to the country," Bustamante said. "I believe that all the candidates understand that and that they cannot do anything crazy because that is a recipe for failure."

Analysts from local bank BCP and investment firm Celfin Capital are expecting the new administration to increase royalties on miners, which currently make payments of 1-3% on gross revenue.

"Given that this issue has been heavily debated these past few months prior to April's presidential election, we expect that it is likely that the current mining royalty will increase," Celfin said in a recent report.

Left-wing candidate Ollanta Humala of the Gana Perú party is currently leading opinion polls with 22.8% support, according to a recent survey by firm Ipsos Apoyo.

Congresswoman Keiko Fujimori is in second with 22.3%, followed by former president Alejandro Toledo (21.6%), ex-prime minister Pedro Pablo Kuczynski (15.8%) and Lima's former mayor Luis Castañeda (15%).

If no candidate receives more than 50% of the votes on April 10, the top two candidates will take part in a run-off. The new president will assume office on July 28.

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