Petroleum exploitation and contract terms in developing countries after the oil price collapse

Abstract

In resource taxation the critical fiscal requirement is a scheme which performs the twin functions of ensuring that projects which are viable on a pre‐tax basis remain so post‐tax, and that the host government obtains a reasonable share of the economic rent. Royalty, income tax, production‐sharing and the resource rent tax are examined in the light of their efficiency at meeting these two criteria. The resource rent tax is probably the most appropriate fiscal instrument because this tax permits a threshold rate of return to be earned before the tax becomes payable. One drawback is that during the early years of a project the host government may receive little or no revenue. An advance resource rent tax can be used to eliminate this shortcoming. A further problem is the disincentive to exploration which can be produced.