Without more investment in the mining industry, mineral production in the Kyrgyz Republic will decline over the next decade. Report by the Natural Resource Governance Institute (NRGI), an independent nonprofit organization dedicated to improving countries’ governance over their natural resources to promote sustainable and inclusive development, says.
As the author of the report «An Economic Evaluation of Gold Mining Tax Regimes in the Kyrgyz Republic» David Manley notes, new mines slated to start production soon might slow this decline, but the future strength of the industry is in doubt.
The projected decline in gold production comes at a difficult time for the government. It is highly indebted, paying 17 percent of its national budget to creditors.
Moreover, borrowing additional funds is likely to significantly increase borrowing costs. Generating more revenue from the mining industry can be an important way to strengthen the government’s budget.
As the report says, if the government wishes to maintain tax revenues from mining, or preferably to increase them, the country needs a tax regime that attracts investment while generating revenue.
The most significant barrier to attracting safe and efficient mining is probably not the Kyrgyz Republic’s tax regime, but the high political risk and other difficulties of doing business in the country.
Addressing corruption and other governance problems are necessary conditions for many investors.
As David Manley stresses, the current legislated tax regime taxes gold mines (other than Kumtor) relatively lightly. The Kyrgyz Republic’s business climate is relatively unattractive to investors, a low tax burden does not do much to compensate.
The study shows that designing a tax regime inevitably involves the government making a trade-off. None of the possible tax regimes for the mining industry is perfect, the right course of action depends on which objectives and concerns matter most for the government.