ANNEX 3: THE ADVANTAGES AND DISADVANTAGES OF ALTERNATIVE FOREST CHARGE STRUCTURES

There are three main types of forest charges commonly used in forest revenue systems, plus a number of other miscellaneous charges that are used less frequently or for minor forest products. The main advantages and disadvantages of each of these are described below, along with an indication of their likely administrative costs.

Area-based charges are generally cheap to calculate and administer, require little policing and encourage the efficient use of the resource. Their main disadvantages are that it is difficult to incorporate differences in productivity between different forest areas (e.g. different levels of commercial stocking) in such charges without having very detailed forest resource information. They can also encourage overharvesting of the resource (which is why they are often combined with volume-based charges). They can, however, be easily used to introduce differences in forest charges to take into account differences in accessibility, working conditions (e.g. difficult terrain and swampy areas) and distance to markets.

Volume-based charges take into account the variability in productivity between different areas and can accommodate the differences in commercial value between different species. Whether they encourage greater efficiency or not, depends upon the point at which the charges are applied. If the total amount of charges due is based on the total standing volume of commercial timber, this encourages the maximum utilisation of the resource. If they are applied to the cut volume, the volume that is transported from the forest, the volume that is finally used in the mill, or the volume of products that are eventually produced, they may do less to promote efficiency. On the other hand, as the basis for calculating charges moves away from the forest to the mill, the cost of monitoring compliance, calculating the charges and policing the whole system becomes gradually less, because the monitoring agency can concentrate its activities at a few points rather than having to visit a large number of widely dispersed forest sites.

Where the forest administration has to inspect, mark or measure forest products as part of its monitoring and charging activities, a volume-based charge is sometimes applied to cover the cost of this activity. Although calculated in basically the same way, this is a charge for the provision of the service rather than as a charge for the use of the resource.

Value-based charges can be cheap to calculate and administer, particularly where they are levied on exports of forest products. Their main disadvantage is that they require the producer or exporter to report the true value of their sales of forest products. Alternatively, the forest administration can attempt to collect general market price information, which they will then use as a basis for setting standardised product values. However, this is more complicated and costly and it will probably still be difficult to obtain true market prices except in the few cases where products are sold openly (e.g. at public auctions).

In most countries where value-based charges are applied, they are applied to the export of forest products. Typically, the charges are set as a percentage of the sale or export price, with a minimum price set by the government. Where producers routinely report selling their product at the minimum price (which they often do), this essentially becomes a variation of the volume-based charge.

If value-based charges are properly implemented and producers are honest (or can not under-report selling prices), they have the advantage that they can very accurately reflect changes in the forest products market and the variation in value between different species and types of product. They do not however, support sustainable forest management very strongly and may encourage waste. They may also discourage the development of value-added industries and, where they are applied to exports, discourage the development of an export industry. Thus, their main purpose is usually as a relatively easy and lucrative way of raising revenues rather than as a tool of forest management.

The last type of charges are flat-rate charges (e.g. monthly permits) either for the use of the resource for a particular activity or for the use of a particular piece of equipment. They have the advantage of being generally very simple to administer and reasonably inexpensive to police. Their main disadvantage is that it is difficult to reflect variability in the level of output in such charges although they are, sometimes, varied according to size categories (e.g. sawmill registration fees set at different levels for small, medium and large sawmills). They may also encourage overharvesting of the resource.

Flat-rate charges are an appropriate and cost-effective way of collecting charges for minor forest products, where a relatively large number of people produce small volumes of forest products for their own-use and sale.

It is common for several of these different types of charges to be used at the same time in an attempt to maximise the strengths of each approach and minimise their weaknesses. Many countries, for example, combine an area-based or flat-fee charge at the start of a forest concession agreement, with an annual area-based charge and a volume-based charge (calculated from various different measures of production).

The forest charging system in Zambia currently relies almost exclusively on volume-based charges. It is suggested that a combination of area-based, volume-based and flat-rate charges should be used to increase the efficiency of collection and monitoring activities and to try to encourage better use of the resource.