Daily Archives: April 10, 2013

Bolivian Mining tax 101: zero over zero, equal zero

Henry Oporto writes in Pagina Siete:

Mining tax: zero over zero, equal zero

Pagina SieteThe Ministry of mines, through its director of Legal Affairs Juan Carlos Carrasco, has confirmed that they want a 55% stake in mining projects operated by private utilities for Comibol. Percentage which would be set for contracts of Association of the State with private companies, provided for by the new Constitution.

55% of State involvement, through Comibol, then would be the payment of royalties. Imposing this criterion in the future law of mining (under preparation), the tax burden to the business would increase to the incredible figure of 91%; private operators would hold just 9% of the net profits. These are facts of the scenarios analyzed in the book The Mining Dilemmas, by Foundation Pazos Kanki, 2012, and so far have not been contradicted by the authorities of the mining sector.

Given that level of taxation, would there be anyone who wants to make mining investment in Bolivia? Even the question seems so idle.

Already at present, mining taxes in Bolivia are the highest in South America and perhaps Latin America. For royalties (whenever there is a utility of 35%) in Bolivia, it is paid between 6% and 7%; in Argentina between 0 and 3%; in Chile, 1.75%; in Peru, 2%. In relation to the profits of the enterprise tax and tax on remittance of dividends, in Bolivia is 45,3%, versus 35% which is paid in Chile and Argentina and 32.9% which is paid in Peru.

If to this we add the inflation adjustment and other additional taxes (ITE, IT, VAT, etc.), it is that (government take) taxation on mining operations with operating costs of 70% (which is the situation of the majority of the mining projects in Bolivia) is easily approaching 67%. It means, then, that tax policy is little or non competitive to attract investment. Precisely, the Fraser Institute measure puts Bolivia in the penultimate place in the international ranking in “taxation”, just above Venezuela.

If it were not enough, the intention to increase (in the new law) the royalties above the current average of 6%, also increase the tax by remittances of dividends from 12.5% to 25%, whereupon the tax level soar to the point of endangering the continuity of mining operations. The sum total gives 91% tax on profits.

It is possible that this danger escapes from the voluntarism of officials of this Government and certain mining unions. Naturally, raising taxes at the price of reduced mining activity lacks any economic logic. Why force higher taxes if the result has to be the closure of companies, the loss of investment and, ultimately, the fall of the mining income and social benefits derived from mining operations?

Of course, that there are those for whom economic rationality does not work, since its rationality is eminently ideological; they repel private investment and dreaming to turn back the wheel of history trying, vainly, to revive a dominant and self-sufficient Comibol. The obvious question is if this Comibol, with its proven financial, technological and business flaws can fill the space that private enterprises leave by their forced withdrawal; if so maybe we could sleep calmly. But we know that it is not. Now, the performance of the State sector anticipates the chronicle of an announced failure.

So it seemed to be warned, the very same President Evo Morales when he could not hide his disappointment showing figures of the decline in production in the nationalized Colquiri mine, along with the sudden growth of the payroll of workers, which has resulted in a 103% increase in labor costs and a net income of – 430% [minus] in six months (July to December 2012).

Meanwhile, and when there is still the commitment to block private activity or reduce it to a minimum, the prospect of the Bolivian mining is more than bleak.

Henry Oporto is a sociologist

http://www.paginasiete.bo/2013-04-07/Opinion/Destacados/18Opi00207-04-13-P720130407DOM.aspx

Crystal clear and the Socialism of the 21st Century keeps on damaging our lives!