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The domestic taxation of petroleum products is an important source of revenue in most countries. However, there is a wide variation of tax rates on petroleum products across countries, which cannot be explained by economic theory alone. This paper surveys different considerations advanced for taxing petroleum and presents petroleum tax rate data in 120 countries. It concludes that a significant reduction in the present extremely wide variation in petroleum prices and tax rates appears warranted.
This paper investigates the response of consumer price inflation to changes in domestic fuel prices, looking at the different categories of the overall consumer price index (CPI). We then combine household survey data with the CPI components to construct a CPI index for the poorest and richest income quintiles with the view to assess the distributional impact of the pass-through. To undertake this analysis, the paper provides an update to the Global Monthly Retail Fuel Price Database, expanding the product coverage to premium and regular fuels, the time dimension to December 2020, and the sample to 190 countries. Three key findings stand out. First, the response of inflation to gasoline price shocks is smaller, but more persistent and broad-based in developing economies than in advanced economies. Second, we show that past studies using crude oil prices instead of retail fuel prices to estimate the pass-through to inflation significantly underestimate it. Third, while the purchasing power of all households declines as fuel prices increase, the distributional impact is progressive. But the progressivity phases out within 6 months after the shock in advanced economies, whereas it persists beyond a year in developing countries.
Better designed and implemented fiscal regimes for oil, gas, and mining can make a substantial contribution to the revenue needs of many developing countries while ensuring an attractive return for investors, according to a new policy paper from the International Monetary Fund. Revenues from extractive industries (EIs) have major macroeconomic implications. The EIs account for over half of government revenues in many petroleum-rich countries, and for over 20 percent in mining countries. About one-third of IMF member countries find (or could find) resource revenues “macro-critical” – especially with large numbers of recent new discoveries and planned oil, gas, and mining developments. IMF policy advice and technical assistance in the field has massively expanded in recent years – driven by demand from member countries and supported by increased donor finance. The paper sets out the analytical framework underpinning, and key elements of, the country-specific advice given. Also available in Arabic: ????? ??????? ?????? ???????? ???????????: ??????? ???????? Also available in French: Régimes fiscaux des industries extractives: conception et application Also available in Spanish: Regímenes fiscales de las industrias extractivas: Diseño y aplicación
Using the modern theory of public economics as the point of departure, this paper outlines a basic principle for setting taxes and/or prices of commodities based on two key criteria, efficiency and equity. The paper shows that for petroleum products, the basic principle needs modification in the presence of various externalities and market imperfections in a setting where the instruments to address the externalities and imperfections are limited. Drawing from theoretical and empirical literature, the paper provides an operational framework and then illustrates how, for a country like Nigeria, the relevant taxes/subsidies to correct the externalities and to address equity and revenue considerations can be measured with a view to setting prices of petroleum products. However, the paper refrains from making any specific suggestion for policy reform in Nigeria. The framework outlined in the paper can be applied to the analysis of petroleum product taxes and prices in other developing countries.
Many developing and emerging countries do not fully pass-through increases in international fuel prices to domestic retail prices, with adverse consequences for fuel tax revenues and tax volatility. The adoption of an automatic fuel pricing mechanism can help to address this problem, and the incorporation of a price smoothing mechanism can ensure pass-through over the medium term but also avoid sharp increases (and decreases) in domestic prices. This technical note addresses the following issues: (i) the design of an automatic fuel pricing mechanism; (ii) the incorporation of domestic price smoothing and resulting tradeoffs; (iii) the transition from ad hoc pricing adjustments to an automatic mechanism; and (iv) policies to support this transition and the maintenance of an automatic mechanism. A standardized template for simulating and evaluating the implications of alternative pricing mechanisms for price and fiscal volatility is available on request.
The sharp drop in oil prices is one of the most important global economic developments over the past year. The SDN finds that (i) supply factors have played a somewhat larger role than demand factors in driving the oil price drop, (ii) a substantial part of the price decline is expected to persist into the medium term, although there is large uncertainty, (iii) lower oil prices will support global growth, (iv) the sharp oil price drop could still trigger financial strains, and (v) policy responses should depend on the terms-of-trade impact, fiscal and external vulnerabilities, and domestic cyclical position.
Although host governments and investors may share one common objective - the desire for projects to generate high levels off revenue - their other goals are not entirely aligned. Host governments aim to maximize rent for their country over time, while achieving other development and socioeconomic objectives. Investors aim to ensure that the return on investment is consistent with the risk associated with the project, and with their corporations' strategic objectives. To reconcile these often conflicting objectives, more and more countries rely on transparent institutional arrangements and flexible, nuetral fiscal regimes. This paper examines the key elements of the legal and fiscal frameworks utilized in the petroleum sector and aims to outline desirable features that should be considered in the design of fiscal policy with the objective of optimizing the host government's benefits, taking into account the effect this would have on the private sector's investment.
Developing countries apply numerous sector-specific taxes to telecommunications, whose buoyant revenues and formal enterprises provide a convenient “tax handle”. This paper explores whether there is an economic rationale for sector-specific taxes on telecommunications and, if so, what form they should take to balance the competing goals of promoting connectivity and mobilizing revenues. A survey of the literature finds that limited telecoms competition likely creates rents that could efficiently be taxed. We propose a “pecking order” of sector-specific taxes that could be levied in addition to standard income and value-added taxes, based on capturing rents and minimizing distortions. Taxes that target possible economic rents or profits are preferable, but their administrative challenges may necessitate reliance on service excises at the cost of higher consumer prices and lower connectivity. Taxes on capital inputs and consumer access, which distort production and restrict network access, should be avoided; so should tax incentives, which are not needed to attract foreign capital to tap a local market.
The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.
Energy subsidies are aimed at protecting consumers, however, subsidies aggravate fiscal imbalances, crowd out priority public spending, and depress private investment, including in the energy sector. This book provides the most comprehensive estimates of energy subsidies currently available for 176 countries and an analysis of “how to do” energy subsidy reform, drawing on insights from 22 country case studies undertaken by the IMF staff and analyses carried out by other institutions.