Mining Taxation in Colombia

Abstract

English Abstract: This paper first assesses the current Colombian mining tax-and-royalty regime in comparison with other countries from the points of view of efficiency, competitiveness and revenue performance. The report then discusses the theoretical convenience of introducing alternative designs for a resource rent tax (RRT) to be applied to new mining projects, together with a reduced common royalty rate for all minerals, and simulates their potential efficiency, competitiveness and revenue-performance effects. In particular, it examines alternative interactions between the RRT, the royalty regime and the corporate income tax (royalties creditable against the RRT or deductible from its tax base; accepting or not corporate income tax deductibility from the RRT tax base), under alternative RRT tax rates. It also discusses alternative capital return allowances and the pros and cons of project-by-project versus sectorial ring fencing, and sharing RRT revenues between the national and sub-national governments. It concludes with a detailed blueprint for reform based on these discussions, assessments and simulations, as well as political economy and administrative considerations for the specific case of Colombia. Spanish Abstract: Este trabajo evalua la eficiencia, competitividad y capacidad de recaudo del regimen tributario y de regalias colombiano en comparacion con el de otros paises mineros relevantes. Posteriormente, propone la implementacion de un “Resource Rent Tax” (RRT) para proyectos mineros futuros (junto con una reduccion y unificacion de la tasa de regalias entre minerales) y modela el impacto que tendria este sobre la eficiencia y el recaudo. Se examinan la interaccion entre el RRT, las regalias y el impuesto de renta bajo distintos disenos y tasas de RRT y costo de oportunidad del capital. Tambien se analiza si es preferible tener “ring-fencing” a nivel de proyecto o a nivel sectorial. El trabajo concluye con una propuesta de reforma junto con consideraciones administrativas y politicas para una exitosa implementacion.