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FISCAL POLICIES


FISCAL POLICY FOR EXTRACTIVE INDUSTRIES


While the development of mineral and particularly petroleum resources can be a very significant source of revenue for governments, this is a highly complex, uncertain and volatile form of development which must be considered not in isolation but as part of a comprehensive development policy. This was one of the issues discussed at the global seminar on the role of Parliaments and Extractive Industries held in Vienna last year.


Members from 11 Commonwealth Parliaments and Legislatures together with representatives from the IMF, the World Bank Institute (WBI), the Revenue Watch Institute and the Parliamentary Centre (Ghana) participated in the “Global Seminar on the Role of Parliaments and Extractive Industries” held at the Joint Vienna Institute in Vienna, Austria, at the end of October 2012.


Viable revenue collection options and challenges Mr Philip Daniel, an Advisor in the IMF’s Fiscal Affairs Department, explained the different ways governments could obtain revenue from extractive industries, adding that all could work equally well if their development was based on well-


designed policies administered by sound institutions. Good development policies and revenue-raising processes had to be easily complied to and robustly administered. Governments could obtain revenue from extractive industries through: contracts including production-sharing regimes; taxes and royalties including the licencing of exploration and exploitation areas; and direct state ownership either as a majority or minority shareholder. All forms could have the same fiscal effects although legal forms, risks and political acceptability could differ. The IMF did not recommend one revenue process over another; but each process had to be run efficiently and transparently. Each process had its own problems and using a


212 | The Parliamentarian | 2013: Issue Three


variety of revenue sources could be beneficial because revenue flows to governments could start from the beginning of a project.


However Mr Daniel noted as well that the formulation of development policies in this area could be undermined by significant information problems.


There was little international comparative data on extractive industries, their revenue production and domestically there was a significant imbalance in the information held by various parties involved in extractive industry development, with producers usually knowing more about possible developments than everyone else. The IMF sought to redress at least some of the lack of international


comparative knowledge by conducting its own study of resource revenues; but it was just one study of revenues at a particular point rather than a long-term systematic study. The development of mineral and petroleum resources was affected by uncertain market prices which fluctuated greatly and unpredictably. The cost of production also greatly varied, as did the political risks and geological factors to overcome. If multinational companies were developing the resources, international legal, financial and other considerations had to also be factored into government revenue calculations. Time constraints further


complicated development. It might be more attractive to the public for governments to agree terms


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