Fiscal Regimes

2. Balancing government and investor objectives

Whilst investors are mainly interested in maximising their share of extractives revenues (investor returns), governments may seek not only to maximise their share of the revenues, but also to boost local employment and procurement, as well as building infrastructure. Trade-offs are required, i.e. strong government demands for local content and social investment by companies can increase costs for investors who in turn may require a higher share of revenues before they will invest.

Decisions regarding the fiscal regime thus must be integrated into a broader strategy for the sector taking into account local content, employment, social impacts and the sharing of revenues between the state and investors. Sector strategies can guide the framework with investors, either through legislation or agreement, to maximise mutual benefits from a project.

You can read more about national sectoral strategies in the Topic Overview: Mineral Policy.

Balancing sometimes competing objectives is also relevant for the design of the fiscal regime once the sector strategy is in place. Designing the fiscal regime involves deciding which fiscal instruments (i.e. mechanisms to collect revenues) to use and how they should be combined. This is because instruments differ in how they generate revenues from the extractives sector as well as their impact on investors and government.