Ministry of Lands and Mineral Resources

Fiji Mineral Resources Department

MINERAL POLICY - Section 2 : Fiscal Policy

Section 2 - Fiscal Policy

General Fiscal Philosophy

2.1 Fiji takes the position that the major inducement to attract mineral sector investors is the opportunity to obtain a return on investment commensurate with the risks faced. In developing the fiscal framework, the Fiji Government has sought to create an internationally competitive package of interrelated measures, which achieves the dual goals of investment promotion and equitable returns to the people of Fiji under a variety of market circumstances. This fiscal framework reflects an attempt to reconcile the national taxation policy with the special needs and characteristics of the mining sector.
2.2 The Government's approach to taxation of mining projects is that the total package of fiscal arrangements enable enterprises to operate in a commercially sustainable manner. The established fiscal framework is considered to provide an environment in which Fiji's mineral resources can be commercially exploited, without major derogations. Minor variations in the timing and incidence of some taxes may be negotiated to fit individual commercial characteristics of particular mineral deposits and associated market conditions.
2.3 Foreign mining investors often bring a variety of home-country tax liabilities to their Fiji operations, however, the Fiji Government is reluctant to forego fiscal revenues which will subsequently be taxed by authorities in the investor's home country.
2.4 Beyond the basic standard fiscal package, the Fiji Government is only willing to discuss the need for incentives for particular projects after the project sponsor has demonstrated that the project has the potential to be economically viable. Requests for such assistance should be submitted at the conclusion of a comprehensive feasibility study. In offering incentives, Government's general approach will be to assist development through interim or transitional relief in the early stages of project development/operation, rather than granting life-of-mine concessions.
2.5 Mineral tax policy does not exist independently from the general tax system applied to other sectors of the economy. Nevertheless, there are special features of mineral development which must be specifically addressed, namely: the capital (and debt) intensiveness of mining ventures; the cyclical nature of metal markets; and the long and costly period of pre-operational expenditures on exploration and feasibility studies. These issues have been considered in framing the tax package, and so, this package has been conceived as a whole and should not be seen as a collection of separable parts.

General Tax Measures

2.6 Mineral sector investors wishing to invest in Fiji can apply for industry-specific tax concessions and exemptions from the Government of Fiji under the auspices of the Income Tax Act (Cap. 201) and the Customs Tariffs Act, 1986. The major elements of the general fiscal package include the following:
2.6.1 Customs Duties - Government proposes to introduce a low standard import duty that will be levied according to the Customs Tariffs Act, and administered by Customs Department. Where that duty is payable on primary or intermediate inputs into commodities or products that are exported, the duty will be refunded. Until this policy is implemented, the following concessionary rates of import duties and Value Added Tax are payable by mining companies:
(i) 5% fiscal and 10% VAT: imports on initial capital equipment including specialised equipment and machinery; specialised spares for heavy equipment and machinery; and chemicals used in the mining process.
(ii) 10 cents per litre and 10% VAT: imports of fuel (IDO) for power generation as available under code 117 in Part 2 to Schedule 2 of the Customs Tariff Act.
although investors can apply to the Comptroller of Customs for customs duty concessions, under the existing powers of the Customs Tariffs Act, such as:
2.6.1.1 The Minister, acting on the Comptroller of Customs recommendation, may remit or reduce the duty paid or part of the duty for goods imported into Fiji which will be of benefit to the country. The Minister may impose conditions as deemed necessary, before remission or reduction of duty can be granted.
2.6.1.2 The Minister may remit or reduce the duty payable in respect of imported machinery and equipment (including parts and materials) if satisfied that it will be used to promote economic development or create the development of industry in the country. The Minister can impose conditions as deemed necessary.
2.6.1.3 The Second Schedule of the Customs Tariff Act 1986 specifies the rates of Customs Duty (fiscal duty), and VAT applicable to all goods imported into Fiji. Fiscal duty, at varying rates, and VAT, at 10%, are payable on most goods required for a mining venture. For businesses which export more than 80% of their product, the VAT of 10% is usually fully refundable.
2.6.2 Company Income Tax - Government proposes to introduce a new low standard rate of company income tax that will apply to all companies. Until this is introduced, existing company income tax rates of 35% for resident companies, and 45% for non-resident companies apply.
Under the existing policy, there are a number of areas within the Income Tax Act that allow mine developers to apply for special concessionary treatment:
2.6.2.1 Tax losses can be carried-forward for 6 years, and carry-forward of other losses from 1 to 6 years from the expiry of the concessionary period;
2.6.2.2 Under Section 16(2)(a), a mining venture can apply for reduced tax rates or for a total tax holiday, for a period determined by the Minister, if the development is likely to be expedient to the economic development of Fiji.
2.6.2.3 Under Section 21(1)(c)(ii) a taxpayer with a valid mining tenement may deduct from total income, (i.e. income generated from all sources) all amounts expended on prospecting for minerals in Fiji, as the Commissioner of Inland Revenue (henceforth referred to as the Commissioner) may, at his discretion allow. The Commissioner in his discretion may direct the expense to be spread over a number of years or in the year incurred.
2.6.2.4 Section 21(1)(e), allows the taxpayer, where profits have been derived from the sale of a mineral, or from a right in or a right to work such minerals, to deduct an amount equal to the cost of those minerals, or right, in determining total income.
2.6.3 Depreciation - Under Section 23(1), of the Income Tax Act, a mining company incurring capital expenditure within Fiji in the acquisition of a mining lease or in the development of mines for the extraction, treatment, refinement and sale of minerals may, as an alternative to normal depreciation, apply for accelerated depreciation on buildings, plant and machinery in any 5 out of 8 years.
2.6.4 Dividend, Interest, Know-How and Royalty Withholding Taxes - All Withholding Taxes are assessed in accordance with Fiji's general tax laws, at rates of 10-15% for interest, dividends, know-how, and royalties. Rates for treaty countries are specified in those treaties. The Income Tax Act allows for application to be made to the Minister of Finance for reduction or exemption from dividend, interest or royalty withholding taxes where such reduction/exemption is considered to benefit Fiji's economy.
2.7 In 1996, the Fiji Government completed a company taxation review which aimed to ensure that Fiji's taxes are low, stable, transparent, in as many cases as possible non-discretionary, and internationally competitive. The review stems from a concerted effort by Government to improve the taxation and incentives system in Fiji. The current process of reform is endorsed by the International Monetary Fund, and it is expected to be implemented during 1997, 1998 and 1999.
2.8 Just one element of this review is to simplify and improve the depreciation allowance system. Under the proposed new system companies shall be permitted to write their capital expenditure off at the rates prescribed for the 6 categories of capital, i.e. buildings; motor vehicles; ships and aircraft; computers and telecommunications; plant and equipment; and the sixth category which is a default provision. This and other new changes are likely to be announced from 1997 onwards.
2.9 As a non-tax incentive, at an advanced stage in the exploration programme, provided there is a firm commitment on the part of the company to proceed with development as rapidly as possible, Government will generally consider negotiating the provision of general infrastructure with mining companies, where benefits will accrue to the public at large. Government feels that the development of multi-use infrastructure is an important and highly desirable benefit of new mine construction.
2.10 Royalty taxes: Royalty in Fiji is a composite of two legally separate, but technically identical, taxes, the Royalty" and the export tax". The "Royalty" tax is paid, through Government, to landowners, however, as the unextracted minerals legally belong to the State, the State also receives the export tax" in the form of royalty. However, since it is recognised that both the export tax and mining Royalty are royalty-type taxes, Government policy is to ensure that the sum of Royalty plus export tax does not exceed 5%.
2.10.1 Royalty - A 3% Royalty based on FOB value will be imposed on bauxite or iron ore, a Royalty of up to 5% of FOB value will be levied on all other minerals. Some flexibility may be possible in the phasing of these payments, so as to accommodate an approved debt repayment schedule within the expected cash flows during the early years of mine operation, with the normal (higher) rates paid subsequently.
2.10.2 Export tax - Export tax is payable at a rate of 3% on the FOB value of gold and silver.