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Part B: Mineral Rights - Part B-6: Beneficiation - Processing, Trade & Transport - 35. Beneficiation – Processing, Trade and Transport - 35.13 Incentives for Processing, Trade and Transportation of Development Minerals | 35.13(a) Tax Holiday

A tax holiday is an incentive in the form of a temporary exemption from the obligation to pay a certain tax. Tax holidays are viewed unfavourably by tax economists when they (a) are unnecessary or (b) result in a taxpayer paying taxes on certain economic activity in a jurisdiction other than the jurisdiction in which the economic activity took place and which granted the tax holiday.

On the other hand, a tax holiday may be justifiable when it avoids the imposition of a tax that renders certain desirable economic activity uneconomical by its effect on marginal cost. For example, if VAT at a high rate (e.g. 15% or more) applies to all imports, in addition to customs duties, and the import of certain equipment is necessary to a certain desirable economic activity but the VAT renders that activity uneconomical, that would be a case where a tax holiday may be justified.

35.13(a) Example:

Article [_]

(1) The holder of an Exploration licence for development minerals issued by the national [Regulating Authority] shall be entitled to the following tax exemptions during the terms of its licence, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

(2) The holder of an Exploration licence for development minerals issued by a provincial/state regulating entity shall be entitled to the following tax exemptions during the terms of its licence, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

Article [_]

(1) The holder of an Exploitation licence for development minerals issued by the national [Regulating Authority] shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

(2) The holder of an Exploitation licence for development minerals issued by a provincial/state regulating entity shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

Article [_]

(1) The holder of an Authorised Processing Facility licence issued by the national [Regulating Authority] shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (d)[tax exemption];

    (e)[tax exemption];

    (f)[tax exemption].

(2) The holder of an Authorised Processing Facility licence issued by a provincial/state regulating entity shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

(3) If the Authorised Processing Facility produces fertilizer products that are sold domestically, the holder of the licence shall be entitled to the following additional tax exemptions during the term of the licence:

    (a)[e.g., VAT exemption on inputs];

    (b)[e.g., VAT exemption on sales of products];

    (c)[other tax exemption].

Article [_]

(1) The holder of an Authorised Trader/Dealer licence issued by the national [Regulating Authority] shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

(2) The holder of an Authorised Trader/Dealer licence issued by a provincial/state regulating entity shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

Article [_]

(1) The holder of an Authorised Transporter licence issued by the national [Regulating Authority] shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

(2) The holder of an Authorised Transporter licence issued by the provincial/state regulating entity shall be entitled to the following tax exemptions for the fiscal year in which the issuance of its licence occurs and the immediately following two fiscal years, provided that it files tax returns that comply with the applicable reporting rules for the tax:

    (a)[tax exemption];

    (b)[tax exemption];

    (c)[tax exemption].

Annotation

The example provides certain tax exemptions to the holders of Exploration licences for development minerals during the term of their licences, which is short.

It also provides certain tax exemptions to the holders of Exploitation licences for development minerals, Authorised Processing Facility licences, Authorised Trader/Dealer licences, and Authorised Transport licences. The exemptions are for their start-up period: the fiscal year in which the licence is issued and the two fiscal years after that.

The example does not propose any particular tax exemptions. The appropriate tax exemptions, if any, will depend on the tax structure and the economic conditions of each jurisdiction, and an analysis of whether certain taxes constitute a barrier to development of the subsector from which relief should be granted. The gains from the favoured economic activity should be greater than the estimate of foregone tax revenue in order to justify the tax exemptions.

The tax exemptions will also depend on whether the licence was issued by the national or the provincial/state licensing entity. In the latter case, some provincial/state tax exemptions may be granted. Thus, each section in the example contains a paragraph on the tax exemptions available to the nationally licenced operator and a separate paragraph on the tax exemptions available to the operator licenced by the provincial/state authority.

For the Authorised Processing Facility that produces fertilizer products for sale in the domestic market, the possibility of additional tax exemptions (notably, VAT on inputs and outputs) is contemplated, because that activity enables stimulation of the growth of local agricultural production.

These provisions should be properly situated in the tax law to better ensure uniform application, but could also be lodged in the mining law, if that is the proper compilation for sectoral fiscal policy in the particular jurisdiction.