8. Fiscal policy
When a country does decide to attract private sector investment, the type of tax regime it creates will help determine its competitive position within the global mining investment arena. Royalty rates can be established using several different systems. These range from royalties based on gross revenue to royalties based on company profits. A middle road is a royalty system that allows certain deductions and may have a built-in sliding scale that changes with high commodity prices.
A seminal reference for an in-depth study on mining royalties from the perspectives of different stakeholders is James Otto et al., 2006. Mining Royalties: A Global Study of Their Impact on Government, Investors and Civil Society.
The mining industry is usually subject to the country’s income tax laws and corporate tax is calculated based on the rate charged for all industrial sectors. There are exceptions to this rule. For example, in South Africa, there is quite a complicated “gold formula” that was created to deal with specific characteristics of deep level gold mining found in the country. This formula exempts marginal gold mines from tax and charges near marginal mines at a much lower rate and richer mines at a higher rate. This is an example of a policy decision that is different from global practice, but has been implemented to address a specific issue in the development of a country’s mining sector.