Improving the Performance of Natural Resource Taxation in Developing Countries
This paper focuses on the administrative challenges which is posed to developing countries, as a result of the increasing emphasis in fiscal regimes for natural resource extraction since the Second World War on income-based taxes, including both corporate income and resource rent taxes, as opposed to royalties. The paper argues from a political perspective, that reduced reliance on royalties has clouded the imagery of natural resource taxation as a means of ensuring governments fair market compensation for the alienation of their non-renewable resource endowments, and instead has rendered natural resource taxation increasingly vulnerable to the political scepticism that has surrounded corporate income taxation in recent decades. The greater exposure of natural resource levies to this scepticism appears to have led to high levels of toleration of corporate tax avoidance by governments at all levels of economic development. The paper argues, from a technical perspective, that income-based levies are intrinsically far more vulnerable to avoidance than royalties, posing substantial administrative challenges to those developing countries that wish to achieve high levels of tax compliance. The paper suggests technical means by which developing countries might improve the performance of income-based natural resource levies. In particular, using the Norwegian reference pricing system for North Sea Oil as a model, the paper argues that developing country governments might obtain greater control over revenue losses by adopting ‘administrative pricing’ regimes.