## Value Added Tax in the Extractive Industries

_IMF Working Papers, October 27, 2023_

## Source details

**Canonical URL:** [Value Added Tax in the Extractive Industries](https://www.imf.org/en/publications/wp/issues/2023/10/27/value-added-tax-in-the-extractive-industries-540826)

## Other formats

- [Markdown version](/en/publications/wp/issues/2023/10/27/value-added-tax-in-the-extractive-industries-540826/index.md)
- [Structured JSON version](/en/publications/wp/issues/2023/10/27/value-added-tax-in-the-extractive-industries-540826/index.json)
- [Bundle manifest](/en/publications/wp/issues/2023/10/27/value-added-tax-in-the-extractive-industries-540826/bundle-manifest.json)

## Bibliographic details
- Authors: Artur Swistak
- Published: October 27, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400258145.001

---

### Overview
- Research question: With the first-best policy (apply the standard VAT to the extractive industry) infeasible in the medium-term for lower capacity countries, what second-best VAT policy designs should be adopted?
- Analytical focus: Systemic analysis of second-best VAT policy designs considering impacts on three key stakeholders: the investor, domestic suppliers, and the tax administration.
- Sector characteristics emphasized: capital-intensive, export-intensive nature of the extractive industries and associated large VAT refund needs.

### Key findings
- General conclusion: 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.
- Stakeholder trade-offs:
  - Investor: Policies affect input VAT recovery and refund timing, which are material given capital intensity.
  - Domestic suppliers: Treatment (taxed or exempt) influences competitiveness and integration into domestic value chains.
  - Tax administration: Administrative capacity and refund management shape feasible policy choices.
- Administrative challenge: Lower capacity countries often struggle to administer VAT in the extractive industries, partly due to large VAT refund needs and associated refund delays.
- Transition recommendation: Governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.

### Policy recommendations
- Short and medium term:
  - Provide a VAT exemption for imports.
  - For domestic supplies, choose either full taxation or full exemption based on country-specific characteristics and stakeholder weighting.
  - Prioritize measures to shorten VAT refund delays to reduce fiscal and investor distortions.
- Long term:
  - Aim to transition to a standard VAT regime for the extractive industries when administrative capacity permits.

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2023/english/wpiea2023221-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2023/english/wpiea2023221-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2023/10/27/value-added-tax-in-the-extractive-industries-540826_