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Taxes and declared profits: Evidence from gold mines in Africa

Luisito Bertinelli, Arnaud Bourgain and Skerdilajda Zanaj

Resources Policy, 2022, vol. 78, issue C

Abstract: In this paper, we analyze the effects of tax changes on the declared profits of extractive firms. We consider a country that levies a profit tax and a royalty on the profits of extractive firms to maximize its tax revenues. Mining companies located in the country engage in overstating extractive costs to reduce their taxable income. We show that the higher taxes, the lower the declared profit. Then, we estimate the effect of the change of profit taxes and royalties on the extracting firms’ profit in African countries during the period spanning from 2007 to 2018. We employ the Mining Intelligence database to constitute an individual data panel of gold mines located in Sub-Saharan countries. Our empirical findings also suggest an inverse relationship between the tax rate change of the tax instruments and the declared profit of the firms. This link indicates that firms decide on how much profit to declare depending on the tax levels.

Keywords: Resource countries; Resource taxation; Royalties; Cost misreporting; Tax avoidance; Gold mines (search for similar items in EconPapers)
JEL-codes: H25 H32 O13 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:78:y:2022:i:c:s0301420722002720

DOI: 10.1016/j.resourpol.2022.102824

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