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Another proposal, raised by Prof. Winnie Monsod, is to
have the Malampaya gas revenue sharing where the government and Shell/private
developers get a 60-40 percent of the gross profit, respectively, be applied to
mining too.
There are several considerations, theoretical and empirical,
in deciding whether to raise, retain or cut taxes in metallic mining, or any
other sectors in general. Here are some.
One, there is a limit to raising taxes. There is an “optimal”
tax rate where government tax revenues can be larger than if government will
further touch the “maximum” tax rate. As the tax goes higher, either people
will reduce working and hence, gross output will decline, or people will resort
to under-report actual production. And government (national and local) tax
assessors and collectors will be happy to accommodate such under-reporting in
exchange for a bribe. This situation is demonstrated by the Laffer Curve.
Figure 1. Optimal
tax rate in the Laffer Curve
This curve is saying that government tax revenue is
larger if the tax rate is only on that “revenue maximizing point” (RMP) rather
than go for 50 or 80 or 100 percent. At higher tax rates, under-reporting of
production, if not under-working, is likely to happen, so that the tax base
declines and hence, revenue collection declines.
Two, there are “deadweight losses” to society as the tax
rates go up. Deadweight loss is an economic term that means “excess burden” or
“inefficiency in resource allocation” because of monopolistic pricing including
government higher tax imposition, externalities and price controls. For
instance, people will buy only a few units of a particular commodity even if
they actually needed more, because of its high price. Or people will buy more
than what they need and end up wasting or losing the excess units bought,
because of government subsidy that result in artificially low price. Such non-
or reduced purchase of certain essential items, or over-purchase of certain
items resulting in wastes, are called excess or unnecessary burden, or simply
“deadweight loss.”
In this hypothetical graph that this author has
developed, let us assume that corporate income tax + excise tax + royalty tax +
certain other taxes would be equivalent to about six percent of the gross
revenues of large-scale mining companies, and consider it as a temporary
equilibrium tax rate . Mining output at that rate is 12 million tons, composite
for various types of metals.
If the government will raise it to 10 percent or higher
to collect more tax revenues, it can result in an area on the left of the RMP of
the Laffer curve and hence, result in higher revenues, or it could be on the right
side of RMP and hence, result in lower revenues.
Figure 2. Possible
Effects of Higher Tax Rate in Mining
A decline in reported production from 12 to 8 million
tons is possible if (a) existing local mining companies will reduce production even
temporarily due to lower international prices of certain metals while local
costs (wages, mandatory social contributions, electricity, fuel, taxes, fees,
etc.) are rising. Or (b) simple under-reporting of actual production by some
companies.
Currently, large scale metalling mining companies (LSMM)
are already paying high taxes and fees to both national and local governments.
In 2010 for instance, LSMM companies paid 43 percent of their net revenue to
the government.
Figure 3. Taxes
and Fees Collection from Philippine Mining, 2010
Source: Dr. Artemio Disini, COMP, presentation at the
Philippine Economic Society (PES) Conference, November 27, 2012, PICC, Manila.
The numbers above would imply that there may be no need
to amend RA 7942, especially on the taxation aspect. But since many sectors and
legislators are driven by the politics of envy, a hike in mining tax may be
inevitable.
The bigger issue in the mining industry is not raising
the tax, but implementing the rule of law. That mining enterprises, large- or small-scale,
local or foreign, should pay the established tax rates and regulatory fees;
that environmental rehabilitation is strictly implemented after a mined out
area; that mine tailings are securely impounded and isolated away from creeks,
rivers, lakes and the sea; that certain community development projects are
implemented to the host villages or barangays of the mining companies.
See also:
Mining 28: Markets, Government and Rule of Law, July 31, 2013
Mining 29: On Open Pit Extraction, Tampakan and SDMP, August 06, 2013
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