Mining 25: Changes in Brazil Mining Taxation

There is a coincidence in mining tax legislation in the Philippines and Brazil. Two weeks ago, Brazil’s President Dilma Rousseff launched a mining bill that proposes to double royalties on mineral wealth from 2% to 4%, to affect mainly  iron ore and gold. The levy will also be on gross revenues rather than profit.

Brazil is the world’s second-largest iron-ore exporter. It currently allows mining companies to subtract some royalty calculation costs. This will change and start charging the levy on companies’ gross revenue. Mining comprises  4 percent of its GDP and almost a quarter of total exports.

The lesson for the Philippines is that the new trend in many countries now is the shift from a profit or net revenue to gross revenue taxation. Almost all governments in the world now are so heavily indebted, they want (a) as much tax revenues as possible particularly from the extractive industries, and (b) money as early as possible. So that even if a mining company has not recovered its previous big expenditures in exploration yet, government wants to collect taxes as soon as the first revenues are earned.

I am posting four stories from Reuters, the Financial Times, Econews and The Economist, from June 18 to 22, 2013. More details about this change in mining taxation in Brazil are discussed there.

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(1) Tue Jun 18, 2013 5:44pm EDT, Reuters

UPDATE 3-Brazil mine bill would double top royalty rate

* Bill to require rights to be developed or lost

* Introduces auction system for some mining prospects

* Vale CEO says would have "major impact" on companies

By Jeb Blount

RIO DE JANEIRO, June 18 (Reuters) - Brazil, a major producer of iron ore, gold, copper and other metals, unveiled a long-awaited bill to reform its 46-year-old mining code on Tuesday, proposing a doubling of the current top royalty rate and stricter rules for opening new mines.

Murilo Ferreira, chief executive of Vale SA, the world's largest iron ore exporter and Brazil's dominant mining company, said the bill would hit the industry hard. He expects the government's revenues from royalties to more than double to 4.2 billion reais ($1.93 billion) from 1.7 billion reais.

Even so, provisions of the bill are less onerous than the industry feared when the discussion of reforms began nearly four years ago. The top royalty rate under the proposal of 4 percent, is only one-third of typical rates charged in some Australian states and about half of proposals in Mexico and Ecuador.