- The paper analyzes the Value Added Tax (VAT) in the extractive industries and its impact on different stakeholders.
- Lower capacity countries struggle to administer VAT in the extractive industries due to large VAT refund needs.
- The paper explores second-best VAT policy designs considering the impact on investors, domestic suppliers, and tax administration.
- The generally preferred policy is to provide a VAT exemption for imports and either fully tax or exempt domestic supplies.
- Governments should make efforts to shorten refund delays and transition to a standard VAT over the longer-term.
- The paper highlights the challenges in VAT administration and cash management in the extractive industries.
- VAT regimes applicable to extractive industries vary significantly across countries due to weaknesses in tax administration.
- The VAT should not impose a burden on investors and exporters, but in practice, it often does in developing countries.
- The paper emphasizes the importance of preserving the integrity of VAT and ensuring its neutrality to investors.
- Failure to manage and pay VAT refunds is a common trigger for introducing special VAT regimes for extractive industries.
- The existing literature lacks a systematic analysis of VAT designs in extractive industries and their trade-offs.
- The paper aims to identify and analyze solutions to common VAT issues in extractive industries.
- Extractive industries pose unique challenges to VAT design and operation due to their investment profile and cross-border operations.
- The majority of extracted minerals and hydrocarbons are exported, requiring a robust VAT regime and efficient cash management.
- The paper highlights the implications of extractive industries’ characteristics on VAT design and possible distortions.
Source: imf.org
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
