Tax Regimes on Mining in

Two fundamental issues underlie mining tax regimes in developing countries. One is that mining targets finite non-renewable resources and therefore taxation has the exceptional role of compensating for the de-capitalization a country endures when those resources are extracted and sold, in most cases, abroad. Additionally, large scale mining often permanently damages the environment, a fact that also requires compensation. The second underlying issue is that the firms extracting the minerals or metals are most often foreign-owned. The difference between foreign tax payers and national tax beneficiaries – voting citizens of a mine-hosting country - elevates the risk of conflict since foreigners are inherently likely to see no direct benefit in paying taxes (except to avoid expropriation) and consequently seek to minimize them. Meanwhile, voting citizens naturally seek to get their governments to obtain the maximum amount of taxes as that translates into better services, larger public investments and income transfers to compensate for the exported non-renewable resources and the lasting environmental costs. This situation is further aggravated by the fact that in this industry the tax payers are very few in number, normally a handful of foreign firms or even just a couple, while the tax beneficiaries are much more numerous. With these considerations in mind, the following details the two main types of tax instruments applied to the mining industry in Latin American countries: royalties and corporate income tax. It traces the current regimes from their origin in the 1980s and 1990s and discusses some of their recent updates.