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Environment & Poverty Times No. 5

Illegal logging costs millions

By Marianne Fernagut, GRID-Arendal

For countries which own and control forests, revenues from timber and forest products can often be a vital source of income to be used for investment in schools, health care, infrastructure – and the environment. Countries such as Cameroon and Ghana are raising substantial revenues from timber auctions and timber taxes. In Cameroon, forestry now provides as much as 25 per cent of total tax revenues. However, a number of studies indicate that in many countries with considerable forest resources, income from timber and forest products is low.

Low revenue returns from forest resources not only have a negative impact on total government expenditures but also result in the wrong signals being sent to the market concerning the value of forests and wood products. In turn, this is damaging to sustainable forest management: often low prices lead to overexploitation of forest resources – the result is deforestation and forest degradation. In some cases, low revenue collection is a deliberate policy of governments that want to subsidize wood consumption – in the form of wood fuel, for example – for social reasons.

However if taxes and charges on timber resources are set at an appropriate level, this can contribute to sustainable commercial logging. Governments will have a vested interest in sound forest management, ensuring that logging and other activities are carried out sustainably and therefore do not threaten future revenue flows. Once a fair and properly administered tax regime on forest products has been established, the authorities – keen to capture all possible revenues – will want to put a stop to illegal logging activities. Loss of revenues as a result of illegal logging can cost governments and economies millions of dollars each year.

A fair level of tax on forest resources can also lead to improved compliance with various environmental directives and generate revenues which can be used to strengthen environmental monitoring and enforcement. Taxes can also act as a control mechanism on logging activities, reducing over investment in the sector and managing sustainable exploitation of resources.

A carefully calibrated tax system plus a long term forest management plan are, in this case, particularly important. If the tax regime and other government policies have the effect of encouraging overexploitation of forest resources, then revenues from forestry are unlikely to be sustained. Yet trying to implement fiscal reforms in relation to forests and the environment is full of challenges. Political and public support must be secured, which often requires strong advocacy.

At present, in countries around the world where the state has control and ownership of the forests, it is generally the private rather than the public sector which benefits from revenues raised from forest resources. Society in general finds it benefits little from the exploitation of the forests. In particular, poorer groups in society often find their access to forests and their resources curtailed as a result of actions by private companies and groups.

If revenues from forest resources are properly monitored and administered, the poor are likely to see that the managed exploitation of forests can result in improvements in living standards, with money spent for example on health and education facilities. In addition, some forest revenues can be allocated directly to local authorities in forested low-income areas. For example, in Bolivia municipal governments keep 25 per cent of revenues raised from the exploitation of forest resources, while in Guatemala the municipalities control 50 per cent of such revenues.

Corruption and illegal forestry

World Poverty Distribution

Where government officials are keen to turn a blind eye for a share of the profits, the more the forests suffer. About USD 5 billion per year is estimated to be lost due corruption in uncollected taxes and royalties on legally sanctioned timber harvests. A majority of the illegal timber comes from Asia, with China and Indonesia as the main sources.