A small paragraph from the latest IMF Staff Assessessment may hold the key in explaining the strange 'clarification' we received this week from government on windfall taxes and variable taxes. It appears the government was not in full agreement with the IMF on how the windfall tax should be applied. I am speculating that they offered the "clarification" as a compromise. Here is the 'small paragraph' :
The new fiscal regime for mining increases the average effective tax rate from a level that was significantly below that in other mining countries. When the international price of copper is at around the historical average, the windfall tax will not apply, and the average effective tax rate would be comparable to that in other countries. When the price of copper is well above the historical average, specifically, above $2.50 per pound, the windfall tax will come into effect and rise progressively with the price of copper. Staff cautioned that while progressivity is desirable, the marginal effective tax rate is very high at very high prices. Staff noted that it could be lowered by making the windfall tax, like royalties, deductible for the purpose of calculating taxable profits. Staff further suggested that, instead of the price-based windfall tax, a more appropriate way of capturing a larger share of the rents when prices are abnormally high would be through a progressive profit-based variable tax that would take into consideration the different cost structures across mines. The authorities argued, however, that they consider the windfall tax a more effective way to capture a sizable share of the rent when prices are exceptionally high and that current income tax provisions do not allow taxpayers to deduct other tax payments.