Desperately exploitive taxes

In a discussion with one bureaucrat, of particular interest was the official’s unusual perspective on the mining industry. 

The Cabinet secretary declared that among industries, one would be singled out and the taxes imposed increased way beyond what others pay. His rationalization for aggressive taxation was that mining was extractive and exploitive of a finite resource. In a sense, his perspective was understandable. At least from the perspective of an accountable bureaucrat whose performance is naturally measured against revenues earned. The tax bureau under his portfolio has had few successes in meeting its targets in the half a decade of its charge.

The demands of an administration seeking to perpetuate itself were increasingly massive and now within its twilight, a lot remained undone. There are several characteristics about the mining industry that set it apart and thus, make it standout as a tax and regulation issue.

In relation to other extractive enterprises such as the logging, and the oil and coal industries, for these there are domestic markets that not only provide downstream industries that immediately show the economic multiplier effect but also show the expansive impact on such critical benchmarks as employment generation and consumerism.

The logging industry immediately feeds into the construction and housing industries and there provides proximate proof of its downstream criticality. The same is true for the oil and coal industries where the products can immediately feed into a downstream sector. The raw material is easily transformed whether in its original state or as a semi-raw material to be immediately applied and used.

Note that there are environmental concerns that affect these other extractive and exploitive industries, some in greater degrees than mining. Note likewise that in these other industries, the social impact might just as well be as critical with a distinct difference where economic multipliers and expansive impacts are concerned.

In the logging industry the kind of community impact where whole communities are erected from nothing, schools, hospitals, roads and whole villages from nowhere are sprung – all these do not just by happenstance appear as they do in the mining sector. While admittedly logging towns are sprung, their degrees of industrial diversity are not on the same level as those from mining. For one, the capital requirements are less. For another, the criticality of foreign direct investments is far lower.

On the sophistication of the emergent community, its degree of industrialization and development, the same is true, if not truer, for the coal and oil exploration industries. In other words the microeconomic impact on the community level where there are positive contributions that are more immediate and relevant do not occur in these industries as they do in exponential levels in mining.

All these make a case for a more liberal tax regime applied on the sector as the economic benefits of the sector redound from a whole slew of mining factors not readily apparent but are real, nonetheless, in degrees much more than those for sectors that are less regulated and less taxed.

The emergent picture of a diversely contributing industry like mining to the goal of wholly and holistic national development cannot simply be framed against a single unilateral gross-receipts tax whose girth, or aggressiveness, is based solely on the argument that the industry is extractive and exploitive of a finite resource.

On the contrary

The mining industry is a holistic contributor to national development in arenas unseen and degrees not readily apparent, unless we are able to profoundly discern the full range of its diverse impacts. As investors, with respect to regulators, understand the full cost paradigm of investments, so should regulators perceive a taxable industry in the same manner, arraying full costs against full benefits. Mining is not simply a source of revenues from its income taxes. It is also a critical contributor to economic development way beyond its audited, bean-counted EBITDA.