Mining Taxation in South America: A Comparative Analysis of Chile and Argentina

Mining, a cornerstone of economic development in South America, is under the spotlight as Argentina and Chile, two major players in the lithium market, navigate tax policies and regulations. Both nations are considering significant changes in their taxation strategies, aiming to strike a balance between economic growth and equitable resource utilization.

Argentina is eyeing the profits of lithium companies with an annual tax to fund infrastructure and proposing a quota system to reserve 20% of lithium output for domestic battery projects. This move is driven by a desire to avoid the 'resource curse,' a trap where resource-rich nations remain economically underdeveloped due to overreliance on raw material exports.

On the other hand, Chile, a mining powerhouse known for copper production, has recently signed a mining royalties law to increase tax burdens on large-scale mining, aiming to raise 0.45% of the country's GDP annually from 2024. These tax revenues are intended for the benefit of local communities and overall societal development.

The perception that Argentinean mining is subject to a significantly lower tax burden than in other countries, particularly Chile, has been a prevalent belief. However, a thorough analysis reveals that both nations have a comparable tax burden, dispelling common misconceptions.

In Chile, mining exports reached a staggering USD 57.1 billion in 2022, constituting 13.6% of the country's GDP. Taxes affecting private mining in Chile include income tax, shareholder taxes, municipal patents, mining royalties, and a recently approved mining royalty law. The effective tax burden is close to 40% of total profits.
Similarly, in Argentina, mining projects are taxed by royalties, income tax, gross income, municipal taxes, and more, resulting in an effective tax burden of approximately 43.4% of EBIT. Additionally, export duties (retentions) ranging up to 8% are imposed on mining companies.

Both Argentina and Chile find themselves among the group of mining countries where private companies bear a higher percentage of taxes. It is essential for the countries to address factors affecting foreign direct investment, such as policy stability and political uncertainty, to foster sustainable growth in the mining sector.
Understanding the taxation dynamics in the mining industry is crucial for informed policy decisions. A balanced approach that fosters economic growth while ensuring equitable resource distribution is vital for the overall development of these resource-rich nations. Stay tuned as both countries continue to refine their tax policies and regulations in the dynamic landscape of mining.