As the new Congress will officially convene in late July
this year, various sectors and government agencies are preparing their
respective “legislative agenda”, the things they want Congress to enact for
their sector. And among the sectors seeking a new law is the mining sector,
about the proposed new mining tax regime.
The move now is to replace the (a) corporate income tax,
30 percent of net revenues, (b) excise tax, two percent of minerals value, (c)
royalty tax to indigenous people, five percent, plus several others, with a 10
percent gross revenue tax.
It is not clear though what to do with these taxes imposed on companies, most likely they will be retained: capital gains tax, documentary stamp tax, value added tax, tax on interest income and payment, vehicle registration tax, real property tax, community tax. And the various regulatory fees -- occupational fee, business permit fees, registration fee, etc.
This 10 percent tax seems big as there are many other costs to consider, like (a)
labor wages, benefits and social insurance, (b) mandatory community
projects/CSR, (c) capex and machinery, trucks depreciation, (d) insurance
against natural accidents (heavy flooding, landslides) and man-made terror (NPA
attacks, other armed groups), (e) various maintenance and operating expenses
(fuel for trucks, electricity and equipment for offices, etc.), (f) mining rehabilitation
and reforestation of mined out areas, (g) other taxes and regulatory fees by
local and national government units.
However, if this looks big for government, then it will
have few reasons to further bureaucratize and delay the entry of new investors
and continued operation of existing investors. Thus, in cases where a municipal
or provincial government will order the cessation of operation of a big mining
company for whatever reason, the national government through the DENR-MGB and
DOF-BIR will overrule the LGUs so that the national government can continue
collecting high taxes.
The advantage here is that things should be made simpler
and more transparent. It is up to the metallic mining companies to cut costs
somewhere, like getting more fuel-efficient trucks and bulldozers, so that a
reasonable or attractive profit can be realized for the various investors and
shareholders of the companies.
Real debates will occur in Congress, in various Committee hearings, as the hardline "No mining whatsoever" and "Allow mining but over-tax and over-bureaucratize it" groups will mix with the more realistic groups.
There were several news reports recently on the proposed
new mining taxation policy in the country. I saw these four stories from the Philippine Star, BusinessWorld, Philippine Daily Inquirer, and Mining.Com.
(1) From the Philippine Star, May 3, 2013,
Environment Secretary Ramon Paje, who co-chairs the MICC,
told reporters yesterday that the draft bill prepared by MICC stipulates a
government share of seven to 10 percent to be obtained from gross earnings and
windfall earnings of mining firms.
The enlarged government share from mining revenues would
replace the two percent excise tax as well as other taxes imposed on mining
firms such as corporate income tax, customs duties and fees on imported capital
equipment among others.
Paje said that of the proposed range of government share
from mining revenues, the bulk should ideally come from gross revenues so that
the government would have a guaranteed income should the company not have
windfall earnings.
“If we use the 10 percent sharing scheme, for instance,
we can get seven percent from the gross and we have already achieved our
objective. The three percent can come from windfall income. Whatever percentage
we use we are more inclined on the gross,” he said.
He said that using this revenue sharing scheme, the
government could reap P10 billion annually from the current average of P800
million annually.
If Sagittarius Mine Inc.’s $5.9 billion copper-gold
project in South Cotabato commences operations, annual revenues from the mining
industry could reach P18 billion.
(2) From BusinessWorld, May 27, 2013
Mr. Paje said the MICC wanted a single, simplified regime
applicable to all types of mining agreements, adding that whether or not this
will be retroactive depends on Congress.
The MGB chief, however, yesterday said the 10% raised by Mr. Paje was just part of the "discussion points."
"The only thing that’s final right now is that the revenue-sharing scheme will be based partly on the gross sale. We want this sharing option to be less subject to discretion," Mr. Jasareno said.
"Basing the sharing on gross sale means that whether or not the mine is profiting, the government will always have a share."
"Rationalization measures for small-scale mining are
under way, such as the revision of the implementing rules and regulation of RA
7076, or the People’s Small Scale Mining Act of 1991 and the identification of
people’s small- scale mining areas or minahang bayan," he
added.
"A draft IRR (implementing rules and regulations) for RA 7076 will be presented to MICC, which if approved will be signed into an AO (administrative order)."
"A draft IRR (implementing rules and regulations) for RA 7076 will be presented to MICC, which if approved will be signed into an AO (administrative order)."
(3) From PDI, June 06, 2013
“We are working with stakeholders to determine the
appropriate balance, or ‘sweet spot,’ that will attract mining investments
while ensuring a sustainable fair share of mining revenue [for the government],
with due consideration to social and environmental aspects,” Purisima told the
Inquirer.
Apart from the 2-percent excise tax, mining companies in
the country must also pay a 5-percent royalty tax if their operations are
located in the property of indigenous people. The national government gets 60
percent of the tax proceeds while the rest goes to the local government unit
concerned.
Mining firms in the country spend around P11 billion a
year for national and local taxes, according to estimates.
The DOF is also studying whether it would be better to
scrap the royalty tax and raise the excise tax by a commensurate margin
instead.
But the removal of the royalty fee will mean that LGUs of
indigenous communities may no longer collect their 40-percent share in the tax
revenue.
(4) From mining.com, June 05, 2013
The government will also insist on applying the tax on
the gross value of each mining company’s output, which will be computed using
monthly trading averages for gold, copper and other precious metals at the
London Metals Exchange. “The formula will be based on prevailing prices rather
than actual transaction value to avoid the complications caused by hedging and
other factors,” Paje said….
Apart from the new excise regime, the Philippines also
envisages windfall taxes when commodity prices are high and the current system
of local governments collecting property taxes from mining firms will stay in
place, subject to caps on yearly increases….
Never that high to begin with, investment in the island
nation now attracts less than $500 million worth of mining investment.
The preliminary 2012 figure was down from nearly $1 billion in 2010 and $625
million in 2011 according to government data.
The archipelago is rich in copper, gold, silver and
chromium and at the moment produces more than 10% of the world's nickel, but
minerals make up only 8% of its exports.
Projects like Tampakan, should it eventually go ahead,
could transform the industry: It is a 2.4 billion tonne deposit, containing
13.5 tonnes of copper and 15.8 million ounces of gold.
See also:
Mining 7: Mining Taxation and Government, March 08, 2013
Mining 12: Political Risks vs. Natural Risks, April 09, 2013
Mining 21: Chile Policies, May 21, 2013
Mining 22: Philippines as EITI Candidate, June 05, 2013
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