Royalties and fees in the mining sector
Gold and diamond mining provide greater revenue for the government and require greater capital and labor investments than timber extraction. The Venezuelan government applies a 34 percent income tax rate to net income from mining companies and a 1 percent royalty on unrefined gold and diamonds. Venezuela’s income tax, which was recently lowered from 60 percent, is similar to that charged by other mineral-rich countries. [206]
Mining companies are charged a $0.002 per hectare area fee. During the exploration phase, mining companies are exempt from paying value-added taxes on imported equipment and are granted duty-free imports of specialized equipment during the life of the project. The government has also sought to attract mining investments by allowing mining companies to sell up to 85 percent of their gold freely, as opposed to selling exclusively to the Central Bank with payment in local currency. Companies are allowed a tax credit of 15 percent of profits to account for depreciation in the early years of a mine’s operation. The Las Cristinas concession, 70 percent of which is owned by Placer Dome, will earn an average of $84 million per year before income taxes. From a large mine like Las Cristinas, the government will earn approximately $29 million each year (see Table 7). Revenue from these taxes goes directly to the national treasury, although the regional Corporaci¢n Venezolana de Guayana will earn approximately $17 million after taxes from the Las Cristinas concession. Placer Dome will take home approximately $38 million per year.
Mining operations are generally more labor-intensive than forestry; the construction phase at Placer Dome’s Las Cristinas mine will employ 3,500 people. Thereafter, a maximum of 900 people will be required to operate the mine. [207] Currently, very few people are employed in the formal mining sector, since there are few operating mines. At least 30,000 additional miners are operating illegally as garimpeiros, although these operations are not regulated or taxed. Generally, small-scale miners do not own exploration and processing equipment, such as milling equipment. After gathering gold-bearing material, the small-scale miner takes it to a mill for processing and is charged 17-20 percent of the gold. Another 25 percent is paid to the owner of equipment used in operations, with the remaining portion accruing to the miner. On average, small-scale miners can obtain 3.5 grams of gold (worth approximately $43.75) for every 50 kilograms of material excavated. [208] Still, at this rate, small-scale miners can greatly exceed the minimum salary of approximately $150 per month for unskilled wage labor. Small-scale gold production, all of which is illegal, reaches between 5 and 10 tons per year. [209] At current international prices, the value of production by small-scale gold miners is between $50 million and $100 million annually. None of that amount goes to the national treasury.
Even if multinational companies increase employment in industrial mines, they are unlikely to absorb the large contingency of local miners who risk being displaced by their arrival. Indeed, preliminary estimates in the region suggest that industrial mining employs fewer people per hectare than small-scale mining. [210] In addition, these independent miners may not be open to working for multinational companies at all, considering recent conflicts between the two parties in the region. [211] Assuming a generous multiplier effect of 5 indirect jobs per mining job created, nearly 7 new mines on the scale of Las Cristinas would have to be developed to absorb the region’s small-scale mining population. [212] Such extensive development is not likely, given that deposits on the order of Las Cristinas are thought to be rare. [213]
References and notes
206 Normal income taxes for mineral rich countries average between 30-40% of net income and royalties are usually between 1-3%. See Government/Industry Task Force on the Canadian Mineral Investment Climate, International Task Reference Charts for the Mining Industry: Background Study on Mineral Taxation Concerns (Intergovernmental Working Group on the Mineral Industry: Vancouver, 1993).
207 Placer Dome, “Las Cristinas: Project Summary,” September, 1997.
208 W. Franco et al., “La situaci¢n actual de la reserva forestal Imataca y propuestas para orientar su ordenamiento,” (Ministry of Energy and Mines: Caracas, 1997), p. 28.
209 Fundaci¢n Terramar, “Estimaci¢n del area afectada por la explotaci¢n minera aur¡fera,” unpublished document, October 1996.
210 B. M?ller, “Esto es mi ambiente, aqu¡ tengo vida: la colonizaci¢n de los bosques del estado Bol¡var (Venezuela) por los buscadores de oro y diamantes en el contexto del desarrollo regional,” paper presented to small-scale mining workshop (Puerto Ordaz, Bolivar, September, 1997).
211 International Environment Reporter, “Environmental Impacts from Mining Raised in Conflict Between Huge Firms, Local Miners,” Bureau of National Affairs (Washington, DC, Feb. 19, 1997).
212 Considering that Venezuela is not likely to have a strong mining supply industry, a reasonable estimate for indirect jobs created locally as a result of mining (multiplier effect) would be approximately 3-4 per mining job created. Gary MacMahon, Consultant, World Bank, personal communication, January 21, 1998.
213 U.S. Geological Survey, Geology and Mineral Resource Assessment of the Venezuelan Guayana Shield, Survey Bulletin 2062, Washington, DC, 1993.
