Taxation of Mining Projects in the Pacific Rim - Problems and Opportunities

This paper compares and evaluates the impact of income tax and value-added tax on the decision to explore for minerals or to develop a mine in four countries: Australia, Papua New Guinea, Argentina and Indonesia. Three aspects are considered in depth:- domestic tax rules applicable to mining projects;- taxation of foreign mining investment and foreign providers of expertise;- taxation of project finance (other than equity) from foreign sources.Specific tax issues discussed include tax deductibility of various costs, treatment of tax losses, special tax incentives, comparative treatment of various corporate structures, non-resident withholding taxes, and tax costs of various forms of project finance. The paper also illustrates the comparative impact of income tax on rates of return by means of a simulation of a mining project in each of the four countries. The simulation demonstrates why the highest rate of return may be obtained in Argentina and the lowest in Australia.Relevant features of the income tax systems in each country (at 15 February 1990) are summarized and compared in several tables annexed to the naner.