Taxation of the Mining Industry in Latin America and the Caribbean: Analysis and Policy

Little is known about mining taxation in Latin America and the Caribbean (LAC), although it is both particularly complex and has large effects on incentives for investments in mining activities. This paper reviews the types and consequences of mining taxes that are applied in the region and their implications for investment. Most countries assess royalties based on the value of production, which are consistent with royalties applied globally. However, miners confront additional taxes such that tax regimes, in the aggregate, inefficiently discourage investment, including income taxes, non-refundable sales taxes on capital purchases, capital taxes, gross receipt taxes, and real estate transfer taxes. Several reforms emerge from the analysis. The most important is for LAC countries to consider profit-based regimes--similar to Chile, Mexico, and Peru--supplemented by a minimum royalty based on the value of production. Company tax reforms should also be considered with the aim to tax mining similarly to other sectors of the economy to improve the allocation of capital.