Value Added Tax in the Extractive Industries

October 27, 2023

Preview Citation

Format: Chicago

Artur Swistak, and Nate Vernon-Lin. Value Added Tax in the Extractive Industries, (USA: International Monetary Fund, 2023) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Lower capacity countries often struggle to administer the Value Added Tax (VAT) in the extractive industries, partly due to the large VAT refunds needs of this capital and export-intensive sector. Assuming that the first-best policy (apply the standard VAT to the extractive industry) is not possible in the medium-term, what should countries do? This paper systemically analyzes second-best VAT policy designs considering the impact of the VAT on three key stakeholders: the investor, domestic suppliers, and the tax administration. The analysis concludes that the generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies, although country characteristics (and, specifically the relative weighting of stakeholders) matter. Moreover, governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.

Subject: Imports, International trade, Revenue administration, Tax allowances, Tax refunds, Taxes, Value-added tax, VAT exemptions

Keywords: EI company, Extractive industries, Fiscal regime design, Hydrocarbons, Imports, Input VAT, Input VAT recovery, Mining, Policy design, Tax allowances, Tax policy, Tax refunds, Value added tax, Value-added tax, VAT exemptions, VAT scheme

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/221
Stock No:

WPIEA2023221
ISBN:

9798400258145
ISSN:

1018-5941

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