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Thursday, 20 August 2009

A vanquished windfall tax barrier...

In Towards a vanquished windfall barrier? we noted that copper prices were close to breaking the $2.5/lb barrier that would have triggered the now abandoned "windfall tax". That barrier has now been comfortably breached this month, with many analysts revising their forecasts for even stronger prices in 2010 due to stronger global recovery coupled with slower growth in mine production boosting the mining deficit. The windfall tax was designed to match rises in the price of copper: it was set at 25 percent while copper sold for $2.50 per pound, 50 percent for the next 50 cents and increased to 75 percent when copper fetched above $3.50 per pound.

As we have discussed many times, and MrK helpfully continues to usefully remind us, although in theory the profit variable tax can go some way to capturing some income, when dealing with mining companies we should focus on revenue based taxes because they are easier to detect. Also easier for the public to check how much revenue government is getting. With profit taxes it is an accountant's job! That is not say revenue taxes are optimal, but there's a reason why the mining company wanted it removed! They saw the prices and they knew they have better accountants!

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