Officials of resource-rich governments could consider managing revenue risks by limiting consolidation by operators in the mining sector through a practice known as ring-fencing. Ring-fencing limits the ability of the mining investor to offset expenditures and revenues between projects and activities, which accelerates government revenues from mining and protects the mining tax base against permanent revenue losses. In addition, it may level the playing field between new and existing investors.
This practice note aims to clarify what ring-fencing means in mining, the advantages of adopting ring-fencing rules where certain conditions are in place, and how to mitigate potential challenges through good tax policy design and effective tax administration practices. It describes and evaluates the different options for designing ring-fencing rules based on the experience of resource-rich countries and highlights key implementation issues that have emerged from the options. This note will help governments of resource-rich developing countries decide if ring-fencing rules are necessary and, if they are, how to design them to safeguard the timing of government revenues from mining.
This is draft report being shared for consultation. Interested parties are invited to send their comments no later than 31st January, 2025 by e-mail to tax@iisd.org in Word format (in order to facilitate their distribution to government officials). All comments should be addressed to the IGF's Global Mining Tax Initiative. Please note that all comments on this public consultation document will be made publicly available.
