Value Added Tax in the Extractive Industries

Artur Swistak and Nate Vernon-Lin

No 2023/221, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: value added tax; tax policy; extractive industries; fiscal regime design; mining; hydrocarbons; policy design; VAT scheme; EI company; input VAT recovery; input VAT; Value-added tax; Tax refunds; VAT exemptions; Imports; Tax allowances (search for similar items in EconPapers)
Pages: 49
Date: 2023-10-27
New Economics Papers: this item is included in nep-acc, nep-des, nep-pbe and nep-pub
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