Lower tax take from mining

20 March 2016

Propuesta Ciudadana has published figures on the collapse in tax receipts on the part of the state since 2011 due to the fall in minerals prices. It argues that the effects have been magnified because under the terms negotiated for the payment of the 2011 ‘windfall’ tax, mining companies were allowed to deduct these payments as expenses for the purposes of calculating corporate income tax. This meant that the amounts paid through the mining canon to sub-national tiers of government were proportionately smaller.

According to Epifanio Vaca, the head of Propuesta, “this has come about because these measures [the ‘windfall tax’] were taken when the prices of minerals were already falling. The prices explain the main part of the outcome [lower tax yield] but there was also a second factor which is that at the time of negotiating these measures the government accepted that the payments of the windfall tax were discounted as expenses at the point of calculating income tax.”

Between 2012 and 2015, income derived from the windfall tax fell by 60% while that from income tax was down by 69%. At the time the government announced that the windfall tax would generate 3 billion new soles a year. In the whole period between 2011 and the first quarter of 2016, it generated 4.2 billion. http://larepublica.pe/impresa/economia/749329-sistema-tributario-minero-otra-vez-esta-en-el-ojo-de-la-tormenta

According to Gustavo Avila at Propuesta, the arrangements agreed back in 2011 were overly concerned in projecting a favourable political image for the government in seeming to push a hard bargain with the companies, but one which did not properly take into consideration the fact that prices would decline.

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