The idea of a mining tax is simple. By increasing the amount of taxes that mining corporations must pay to extract materials from the ground, it can limit the waste that occurs further along the manufacturing chain. At the same time, more revenues can be gained through the taxation to fund other programs that can counter the damage that mining does.
Countries like Australia have already implemented a mining tax and sometimes the results are mixed at best. Here is a look at the mining tax pros and cons so that you can get a more in-depth look at this particular issue.
The Pros of a Mining Tax
1. It levels the playing field.
The fact is that most countries only have a few companies running the mining operations. There is such a lack of competition, in fact, that there are localized monopolies on the mining industry. When this occurs, the mining company has the ability to set their own pricing schedules for the products they product. By having a mining tax in place, some of these price increases can be limited while encouraging more competition.
2. Monetary benefits can help communities.
Under Australia’s mining tax, any profits made by the mining companies that was above 6% of their capital investment would be taxed at 40%. This helped to benefit communities because it helped to offset some of the costs of increasing resource prices because global mining results are often inconsistent.
3. It makes foreign money become local money.
Most mining corporations throughout the world are actually foreign-held companies. This means that many of the revenues that the mining corporations are able to generate are filtered out of the country, away from communities and programs that would normally have access to those funds. Because mining is essentially a finite resource, eventually those profits will disappear and without a mining tax, those that did the work will be left with essentially nothing.
4. It reduces the chances of a two-speed economy.
The problem with an overly strong mining industry is that it tends to push up the value of the local monetary unit. That decreases the opportunities that other industries have to sell their products. The end result is that one part of the economy is very strong, but supported by the weaker parts of the economy. This top heavy two-speed economy eventually topples if it isn’t balanced out, which a mining tax can potentially do.
The Cons of a Mining Tax
1. It is difficult to create a fair tax for generalized mining.
Depending on the type of mine that is operating and what materials are being brought up from the ground, how a tax would look could be very different. Each type of mine and each type of ore or other material has its own pros and cons that must be evaluated to create a fair taxation table. If one industry is over-taxed, that will simply limit or eliminate its production.
2. It can increase regulations.
In order for a fair mining tax to be implemented, a government institution must create a series of regulations that create definitions that are collectible for revenues. This means mining companies typically must make more capital expenditures, even if it is just in administrative costs, to meet those new requirements. That makes the value of the company less, which likely reduces the amount of taxable income that will be available for the mining tax.
3. It can increase resource costs.
A component of those new regulations must also include a limitation in how much a mining company can raise prices. If they are not capped, then the companies will simply raises resource prices to cover the additional cost of the taxes. In the end, should this scenario happen, it is the average consumer who is paying the mining taxes and not the companies, leaving them with the same amount of income and you will less.
4. The results have proven to be inconsistent.
Just 3 years after Australia passed their version of a mining tax, they held a vote to repeal it for good. The fact is that when it comes to taxes, people and companies do whatever they can to reduce the amount they must pay each year. The revenues that came from the mining taxes were being overshadowed by the costs of implementing the system in the first place, creating a net loss.
The mining tax pros and cons look like a good idea on paper. Implementing them can sometimes be a different story. We can take the lessons learned from Australia’s efforts and apply them locally to see more of the benefits, but that doesn’t mean the disadvantages just disappear. Only time will tell if this type of tax turns out to be a good idea or not.