FfD4 Countdown: Resource taxation must be part of the agenda at the Fourth Financing for Development Conference

The zero draft of the outcome document of the Fourth International Conference on Financing for Development (FfD4) recognizes taxation’s crucial role in financing development as part of a robust public financial management system, and emphasizes international tax cooperation. However, the current text overlooks an important area: the taxation of natural resources.

For many developing nations, natural resource revenues, including mineral resources, are a key source of government income. The sector is also a major driver of illicit financial flows. This issue was clearly identified in the Addis Ababa Action Agenda, the outcome of the previous FfD conference. Failing to address resource taxation at FfD4 would represent a significant setback in tackling domestic resource mobilization challenges.

Why Is It Crucial for FfD4 to Address Resource Taxation?

Many developing economies depend on natural resource extraction. According to World Bank data, in 2021, natural resource rents represented more than 10% of gross domestic product (GDP) in 20 lower- and middle-income countries, and more than 4% of GDP in over 40 countries. The International Monetary Fund (IMF) 2024 Regional Economic Outlook describes 15 sub-Saharan Africa economies as resource intensive.

The sector is an important contributor to government revenue. In the mining sector, 24 of the largest companies, members of the International Council on Mining and Metals, reported paying USD 42 billion in 2024 and USD 54 billion in 2023 in taxes and royalties to host countries. Economies like Australia, Brazil, Canada, Chile, Indonesia, Norway or Saudi Arabia show that extractive industries can be leveraged to fund domestic development priorities.

However, revenue contribution from natural resources could be higher in developing economies. Among the notorious obstacles to optimal revenue collection from the sector are generous tax incentives, weak governance, poorly constructed contracts, aggressive tax planning by multinationals, and inadequate fiscal policies. The Addis Ababa Action Agenda already recognized the need to address “excessive tax incentives” and strive for “fair and transparent concession, revenue and royalty agreements, and for monitoring the implementation of contracts”.

Since 2015, we have seen more evidence of base erosion and profit shifting in the mining sector. IMF research shows that African countries are losing between USD 470 million and USD 730 million per year in corporate income tax on average from multinational enterprise tax avoidance. A single transfer pricing audit of a large mining company by the Mongolian tax administration led to an assessment of USD 228 million and a denial of USD 1.5 billion in carried forward losses.

Seizing the Moment for Reform at FfD4

Many countries have a unique opportunity to address these obstacles and rethink resource taxation according to their national priorities. With the race for energy transition minerals, and global competition for raw materials, many countries are now being given a chance to rethink how best to maximize the financial benefits of their natural resources.

There is strong international support for greater benefit sharing from critical minerals. The United Nations Secretary-General’s Panel on Critical Energy Transition Minerals 2024 report recommends to “accelerate greater benefit-sharing, value addition and economic diversification in critical energy transition minerals value chains as well as responsible and fair trade, investment, finance, and taxation”. South Africa’s G20 presidency aims to “work together to harness critical minerals for inclusive growth and sustainable development” and is promoting an “Initiative on critical minerals”. The African Development Bank recommends to “harness value addition in critical and rare earth minerals so as to mobilize additional domestic resources for complementing tax revenue in Africa”.

What Is Currently Missing in FfD4’s Approach to Resource Taxation?

The zero draft of the FfD4 outcome document emphasizes several important approaches to improve tax and domestic resource mobilization, such as a consistent approach to public financial management, a focus on broadening the tax base, subnational taxes, improving tax administration, ensuring fairness, equity, gender-based budgeting, environmental and climate considerations. It also supports international tax cooperation. However, unlike the Addis Ababa Action Agenda, it does not explicitly mention the contribution of natural resources to domestic resource mobilization.

Critical minerals are mentioned in the section of the draft outcome document dedicated to trade and value chains. Encouraging domestic value addition is important in the development agenda of many resource-rich countries, but equally important is the need to ensure fair fiscal terms and reliable government revenues.

How the FfD4 Draft Can Address Resource Taxation: A Call to Action

We suggest that a subparagraph be added to the section on “Fiscal systems and alignment with sustainable development”, paragraph 29:

• Natural resources such as minerals and metals should be an engine of economic development and domestic revenue generation. We support strong resource governance, equitable sharing of financial benefits, domestic value addition and effective government oversight.

We also suggest emphasizing the revenue potential of critical minerals in the section on “Trade in critical minerals and commodities”, paragraph 46, and removing “stability” which may be erroneously interpreted as supporting unflexible stability clauses in mining contracts – “predictability” is a more acceptable proposition for investors and hosts governments alike:

• d) We stress the importance of providing support to developing countries to negotiate commodity contracts with terms that provide predictability and stability for investment, while also providing adequate and reliable revenues for governments and flexibility to respond to changes in economic and market conditions.

The Fourth Financing for Development Conference should explicitly highlight the role of natural resources in domestic resource mobilization. Its section on fiscal systems must include resource taxation, a key factor in boosting revenues and driving sustainable growth in developing countries.