One of President Ollanta Humala’s policy priorities is to raise taxes on mining, but he will probably seek a comparatively moderate increase given his desire to keep carefully the sector fairly attractive for traders. Recent statements by key officials stating the government will work out its proposals with mining companies and that keeping the sector competitive will be a guiding rule of reform, reinforce this appraisal.
Nevertheless, two factors could lead the government to seek a more cumbersome tax increase. The first is Humala’s desire to centralize revenue in the hands of the central government, which poses the risk that companies will bear the cost of compensating local and regional governments for just about any income loss. Second & most significantly, a drop in Humala’s approval rating suggest he could become politically weaker in the medium term, something that would raise the risk that he shall tax more heavily mining production to finance new spending.
Recent statements by key officials strengthen this appraisal. They have reaffirmed the government’s plan to expose a windfall revenue taxes on mining, a proposal that experienced already been contained in Humala’s advertising campaign manifesto. But new “prime-minister” Salomon Lerner, Minister of Mines and Energy Carlos Herrera Descalzi, and Minister of Finance Luis Castilla have all said that the government will negotiate tax steps with companies and seek to keep carefully the sector competitive.
Humala himself said in his 28-July inauguration conversation that the federal government will discuss higher taxes and respect taxes stabilization agreements. While … Read more
