We are currently entering an unprecedented global era. Across the world, governments are balancing a transition away from fossil-fuel based systems of energy production and consumption while at the same time needing to encourage further growth and development. 

Mining finds itself at the centre of this seismic shift. Our industry needs to produce the metals and minerals the world so urgently needs but in ways that are aligned with ever-increasing societal expectations. 

We've seen critical minerals strategies around the world including the EU Critical Minerals Act in Europe, export bans in Namibia and the Philippines and tax incentives to attract more of the lithium value chain in Mexico, but the elephant in the room remains.

There is simply not enough investment in mining development to satisfy demand for future minerals and metals. The International Energy Agency estimates that under a net zero 2050 scenario we will need 57% more copper, 945% more lithium, 94% more nickel and 151% more cobalt. This means an estimated US$790 billion investment in mining from 2024 to 2040 under the net zero scenario. We need to ask ourselves the question – how can we produce the metals and minerals needed in a way that respects the planet and supports people to prosper? 

This is where tax plays an important role. It is probably not the first thing you think of, but there is a strong and abiding link between ‘responsible mining' and sustainable tax principles. Specifically, tax design governs the incentives, the returns and the overarching social licence between miners and host countries. In this way, it can encourage (or discourage) investment in resource-rich countries, simultaneously unlocking their economic potential, driving wider social and economic development and incentivising sustainable and responsible practices. 

Mining's social and economic contribution throughout the mine lifecycle

Now let's go back to that elephant in the room. Benchmark Source has estimated that by 2035 we will need over 300 new mines. Typical mine development can span, on average, a 17-year journey from exploration to production and at each stage, the mining sector makes a significant economic and social contribution. 

 Underpinning this is the need for effective and consistent tax settings which have the potential to attract, fast track and foster investment in mining. Without these, governments run the risk of reducing the confidence of the international investment community which could jeopardise long-term revenue for all stakeholders. 

Tax principles for sustainable mining 

By no means is there a ‘one-size-fits-all' tax system for tax policy makers. We have identified six wide-ranging tax design elements together with overarching tax principles which should be considered by tax policy makers to drive sustainable taxation and facilitate efficient, sustainable mining projects. The six tax design elements are: royalty payments, corporate income tax, deductions and incentives, international competitiveness, fiscal stability and administration and transparency.

We are not advocating for the industry to pay less tax. Rather the need for a shared understanding with governments and other stakeholders on the investment needed for the energy transition, and the role of effective and stable tax systems to make this happen for everyone's benefit. 

A collaborative effort 

National governments have an important role to play. They need to achieve a balance between their country's revenue objectives and expected investment returns across the entire life cycle of a mine. This includes ensuring the level and mix of taxes is carefully structured to incentivise what is a significant up-front capital commitment from mining companies on a long-term, potentially risky venture. They must also have the policies and governance structures in place so that their citizens reap the benefits of mining. 

Meanwhile companies must continue to transparently disclose data relating to their social and economic contributions including tax payments and their mineral resource contracts. This allows for citizens to hold governments and companies to account for taxes paid and where these revenues go.

Collaboration between governments and mining companies is essential. This is the best way of establishing the long-term, strategic policy settings which are needed.

Indeed, through our own analysis we can see that sizeable economic dividends can be secured by host countries that consider the tax principles noted above. Finding this optimal space is paramount in designing sustainable taxation systems that will stand the test of time and support the social and economic progress possible from mining. 

If we get these tax settings right, we can help tackle the world's pressing economic, social and environmental challenges in a way that is responsible and sustainable.