How Does Taxation of Oil and Gas Hold up in Commodity Price Volatility?

Over the past decade, commodity prices have seen down-crashing prices in 2015 and 2020, as well as skyrocketing prices of crude oil during the post-COVID-19 recovery era. Several causes of these developments have been outlined in the extant literature. For instance, the recent surge in commodity prices in the aftermath of the 2020 pandemic is primarily due to a fuel scarcity emerging from the geopolitical tension, specifically, the Russia–Ukraine war, which tends to drive up oil prices and other commodities. While some of the causes of these price crashes are well known, others are complex. Generally, a combination of oversupply and weak demand, pandemics and political disturbances are major causes of these downward or upward commodity price crashes. However, the link between taxation in the oil and gas sector and commodity price volatilities could never be overemphasised. Various resource-endowed economies consider different policy issues when designing tax structures in the oil and gas industry. These taxes range from royalties to corporate taxes. While high tax rates could serve as a disincentive to investors in the industry, resulting in a shortfall in demand, low tax policies have the potential to induce over-investment and production. This chapter provides a review of commodity price crashes and the role of taxation within the oil and gas sector with an emphasis on emerging economies. The chapter covers tax rate management and tax practices, the oil and gas industry, and the taxation characteristics across oil and gas resource economies. It offers some insights into taxation and price volatility dynamics and policy implications.