chapter  1
Pages 10

What this book is about There is big money in oil, gas, and minerals – big not only in absolute terms but also, and more importantly, relative to the overall size of many resourceendowed countries. Upfront investment costs are commonly huge, as are the potential rewards (and losses). How all this gets shared between the governments that control access to the resources and those who discover and exploit them – that is, how these resources are taxed – can have a powerful impact on the economic and political fate of resource-rich countries. But it is not only the sheer magnitude of the sums at stake that motivates this book: that in itself need not pose intellectual or practical challenges qualitatively different from those studied in the wider public finance literature. The principal motivation lies rather in distinct challenges for tax design and implementation that are posed by inherent characteristics of the sector: heavy sunk costs and long production periods (making the certainty and credibility of tax policies critical for investors), pervasive uncertainty (technological and economic), the volatility of commodity prices, the prospect of substantial earnings in excess of the minimum required by investors, and the ultimate exhaustibility of deposits. All but the last of these are present in other activities too. But in the resource sector they are center-stage rather than – as in most of the literature on business taxation – minor players. It is the conjunction of massive practical importance and distinctive conceptual and practical difficulty that is at the heart of this book. Specifically, this book aims to provide an exhaustive account – accessible and useful to all those with more than a passing interest in the topic, whether practical or more academic – of core issues that arise in designing and implementing fiscal regimes for oil, gas, and mineral taxation, the focus being on taxation in the countries where the resources lie, not necessarily those in which they are ultimately used. The concept of a “fiscal regime” here includes not only literal taxes – compulsory unrequited payments to government – but also, for instance, production sharing, royalties, state participation, contract fees, output pricing constraints, and the like, together with tax administration. (Quite often, as in the title of the book, we use “taxation” as synonymous with fiscal regimes in this wider sense). Reflecting the focus of most the work of the IMF in resource tax

issues, some but by no means all of the chapters give special attention to the particular circumstances of resource-rich lower-income countries (which face, for instance, quite different challenges in administering resource taxes).1 As a guide to reading, this introduction provides a taster of each of the chapters.