Canadian provinces should eliminate tax breaks for mining companies because they have a “distorting” effect on investment, said Jack Mintz, an economist at the University of Calgary.
The incentives spur investment in projects that might otherwise be uneconomic, according to a report published today by Mintz, director of the university’s School of Public Policy, and Duanjie Chen, a research fellow at the school. Provincial governments should drop special tax credits and a “generous” depreciation allowance for mining investments and instead adopt a rent-based cash-flow tax for the industry, they said.
Canada already plans to cut about C$55 million ($53 million) in tax breaks for mining companies and lower deduction rates for mineral-property development, according to federal budget documents released in March. While the federal government has taken steps to improve “tax neutrality” between mining and non-mining industries, more should be done, particularly by the provinces, Mintz and Chen said.
“Provincial treasuries certainly cannot afford these breaks, and neither can the Canadian economy as a whole,” they said.
Mining, quarrying and oil and gas extraction accounted for about 8 percent of Canadian gross domestic product in February, according to Statistics Canada.
Mintz and Chen’s comments come as mining companies face pressure from countries including the Dominican Republic and Kyrgyzstan to share more of their revenue, even after commodity prices declined this year. Canada’s Barrick Gold Corp. (ABX) agreed this month to amend a lease governing its Dominican Republic mine and Toronto-based Centerra Gold Corp. is in talks with Kyrgyzstan on ways to increase benefits to the country.
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