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Part C: Fiscal Terms - 36. Fiscal Terms - 36.3 Taxes | 36.3(e). VAT

Value-added tax (VAT) is a form of consumption tax charged on the amount by which the value of an article has changed as it passes from one stage of production or distribution to another. In essence, the tax is charged on the difference between an article’s resale price and the price at which the seller purchased the item. VATs apply to domestic consumption, and thus VAT is generally paid on imports but not on exports.

All corporations in a country that applies VAT are subject to the tax, which they pay on their purchases and collect on their sales. In theory, mining companies should simply be subject to the general VAT system in the country.

However, mining companies generally export much of their production and in common with other exporters are not required to charge VAT on their export sales; there is a reverse charge in the importing country. Since there is no output tax against which to offset VAT, mining companies will incur a VAT cost on their VATable purchases that will not be offset by their sales. They should therefore be able to reclaim their VAT on their VATable purchases. However, in practice governments are often late in reimbursing companies, which can create negative cash flows and lead to lengthy and costly tax disputes.

Some countries have addressed these problems by exonerating mining companies from VAT altogether. If governments want to follow this model, they should:

  • Allow a 0% VAT on imports, rather than an exemption. That way, all necessary forms and declarations are filed, which allows the tax regulating entity to control against abuse and enforce a country-wide VAT system.
  • Maintain full VAT obligations on domestic purchases. Otherwise, companies’ domestic contractors will then be the ones having VAT claims on the tax regulating entity, which may put their financial situation at risk. It also risks undermining the whole VAT system in the country if mining is the dominant sector in the economy.

If companies are exempt from VAT on imports but not on domestic purchases, it could make imports otherwise available locally cheaper and disincentivize local sourcing of goods and services. Rules on VAT should be designed taking into consideration the government’s local content policy, if applicable, and the existence of reliable domestic providers of goods and services needed by the mining industry.

In general, governments’ tax regulating entities should prioritize timely reimbursements of companies’ VAT claims, whether in the mining sector or other sectors. This will improve the overall business environment. If timely reimbursement proves difficult, an option could be for companies to pay VAT on imports into an escrow fund ring-fenced from budgetary pressures, or in certain circumstances by allowing companies to deduct their VAT claims from taxes owed to the tax authority.

36.3(e). Example 1:

Article [_]

(1) An operating licence holder shall be exempt from VAT on their foreign services and imports, on the purchase of goods and services for use in the Ivory Coast and on sales related to mining operations, until the date of the first commercial production.

(2) During the implementation phase for the initial investment and the expansion of the production capacity of an existing mine, an operating licence holder shall be exempt from customs duties, including VAT, collected on imports of materials, components, machinery and equipment as well as detached parts included in the approved programme and intended to be used directly and definitively for mining operations.

(3) An operating licence holder, their affiliates and authorised subcontractors shall benefit from:

(a) an exemption from customs duties payable on the gas or liquid fuels, lubricants, and chemicals or organic materials required for ore processing, including VAT, for the duration of the mine's operations;


Drawn from Cote d’Ivoire’s mining code (2014), this provision exonerates companies from payment of VAT on imports that are already exempt from custom duties, such as most capital goods during the exploration and development phases.

Countries that produce little or no oil sometimes grant VAT and duties exemptions on fuel imports, so as to reduce the burden on mining companies and the total VAT claims on the tax authority. In such cases, custom authorities should closely monitor fuel imports, to prevent companies from abusing the system and importing more fuel than is needed for mining operations and reselling excess fuel.

36.3(e). Example 2:

Article [_]

(1) Holders of exploration permits are entitled throughout the period of exploration, to an exemption from:

(2) TVA or Value Added Tax (VAT) on imports of equipment, materials, machines and consumables indicated in the mining list submitted, before the beginning of the Exploration Phase, on condition that such mining list has been approved in compliance with provisions of [relevant article] of this [Code][Act][Law]. However, imports of goods which are excluded from the right of deduction pursuant to the provisions of the [Tax [Code] are not exempt from VAT, even when these goods were included in the duly approved mining list.


Drawn from Guinea’s mining code (2011), this provision allows for companies in the exploration phase to be exempt from VAT on their imports in the same way that they are exempt from custom duties. The good practice here is that it provides for the General Tax Code to limit this exemption, if the finance regulating entity finds that some imports should not benefit from VAT exemptions.