Forests Sourcebook - HCV Resource Network

forestry policy or to promote other government policies.
Forestry policy objectives largely center on sustainable forest
management (that is, the promotion of good forest practices
and deterrence of bad practices). Broader policy objectives
can include income redistribution, correction of
externalities (nonmarket costs and benefits), strengthening
of legal compliance, and encouragement of economic development
(for example, through the creation of income,
employment, and value added).
Three other issues should also be considered in the
design of any system of fiscal instruments:
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Economic efficiency. Fiscal instruments often result in
market distortions (they alter the costs and prices of
inputs and outputs in the sector). These should be minimized
wherever possible, unless introduction of such
distortions is a specific policy objective.
Administrative efficiency. The public costs of enforcement
and the private costs of compliance with the fiscal policy
should be appraised and minimized wherever possible.
Equity. The impact of fiscal instruments on different
income groups should be considered. All groups should
face the same set of charges and incentives, unless income
redistribution is an objective of the fiscal policy (to assist
with poverty reduction, for instance) (see box 5.15).
OPERATIONAL ASPECTS
Technical and policy considerations can shape fiscal
instruments. Fiscal instruments employed in the
forestry sector encompass a wide range of different types of
forest charges (see annex 5.4A to this note) and incentives.
Operational aspects of the design of fiscal systems in the
forestry sector fall into two broad categories. The first
includes technical considerations, such as setting the correct
level of charges and incentives and designing a system that
is efficient and equitable. The second includes policy-related
considerations: Does the system promote good forest management,
good governance, and poverty alleviation? Box
5.16 presents a brief summary of some of these issues,
which are further elaborated upon in this note.
Setting forest charges correctly. To ensure that forest
charges are economically efficient and do not introduce unintended
distortions in the markets for forest products, the correct
levels of forest charges must be established. Because
charges for services and materials (fees) should reflect their
costs, and general taxes are largely outside the control of
forestry administrations, the main concern of forestry
administrations is usually to establish the correct level of royalty
payments (that is, payments for the use of the resource).
Box 5.15
Informal Competition for Harvesting Rights in Fiji
Most natural forest resources in Fiji are owned by local
communities (native landowners), but monitoring and
control of forest harvesting is performed by the
Forestry Department. The Forestry Department, along
with the Native Land Trust Board, assesses and collects
a variety of royalties and fees. Some of this revenue is
retained by the two organizations to cover their administrative
costs, but the majority of the revenue collected
is distributed to individuals in local communities
where harvesting has occurred.
To gain access to forest resources, forest operators
have to obtain a license from the Forestry Department
and (at least informal) approval from local communities
where they wish to harvest. As part of the negotiations
with local communities, it has become common
practice for potential license holders to offer additional
benefits (monetary or in kind, known as “commissions”
or “goodwill”) to communities where the harvesting
will occur. Because of the infrequent revision of
Source: Whiteman 2005.
royalty rates, these additional payments can be almost
as much as the revenue collected through the royalty
system.
Analysis of the total amount of revenue collection
has shown that almost all the rent from forest operations
is collected and that about 85 percent of this is
paid to local communities (with the remainder
retained equally between the Forestry Department, the
Native Land Trust Board, and the forest operator). This
high level of rent collection is no doubt due to the presence
of the informal market mechanism on top of the
official forest revenue system.
The success of this system is due to the following
factors: a high level of competition for the resource;
well-informed communities with a long tradition of
community rights; a strong legal framework and institutions
to support local communities; and the creation
of an established norm to make informal payments on
top of official royalties and fees.
NOTE 5.4: STRENGTHENING FISCAL SYSTEMS IN THE FORESTRY SECTOR 181