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Administering government revenues from extraction of nonrenewable natural resources (NR)—oil, gas, coal, and other minerals—presents special diffi culties. At one level one could ask: how hard can it be to collect taxes from fi rms that are basically digging holes, taking material out of the ground, and transporting it to the point of export or to a domestic refi nery, especially as it can be physically measured, weighed, and controlled? But this is not the whole story.

The NR industry has a number of special features that generally result in its being taxed diff erently from other industries, creating special challenges for administration. Th ese features include nonrenewability; a huge variation in scale and profi tability (this can refl ect diff erences in industry size, for example, artisanal mining activity vs. that of multinational enterprises, or variations in profi tability over time); exceptional rent-generating potential; high uncertainty and risk; substantial capital investment; long development and operating periods; high export and import levels; distinctive commercial risk-sharing arrangements; frequent transfers of ownership; a high level of state control and ownership. Large resource revenues frequently lead to poor governance. Many of these special features and diffi culties are especially prominent in developing countries. In addition, contractual agreements (including production sharing agreements) and state participation commonly play a more important role in some of those countries than in developed economies.

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