Profit based mine tax recommended

Levying taxes on profit from mining operations would be the most effective way to implement a separate mine tax, said the Ministry of Finance in a press release on Friday referring to a study.

The goal of the research project between the VATT Institute for Economic Research, the Finnish Environment Institute and KPMG was to identify a tax instrument that would guarantee reasonable income for society from the extraction of non-renewable natural resources.

In the project, a mine tax was studied from the perspectives of economics, tax law and environmental regulations.

The research group compared the advantages and disadvantages of different tax instruments using research literature on economics and a simulation model. Based on the comparison, taxes on mining companies’ economic rent and profit would enable the effective collection of tax revenue, without distorting the companies’ financial activities.

“Taxes on economic rent and profit have a minor impact on companies’ investments, mineral extraction and operational continuity. Royalties would increasingly make mining operations unprofitable. Levying a tax on profit is a financially more viable option,” said Seppo Kari, chief researcher at VATT.

Revenue from taxes on profit is difficult to estimate. The problem can be reduced by combining taxes on profit with royalties based on the value of minerals, which would produce more stable tax revenue, starting from the launch of mining operations.

The researchers do not support the idea of providing municipalities with the right to levy taxes. As a result of the tax revenue-based equalisation of central government transfers to local government, allocating tax revenue to mining municipalities would only benefit them marginally.