BWorld 151, Mining taxes per hectare of land

* This is my article in BusinessWorld last August 30, 2017.

A repeated argument by many sectors clamoring for suspension or closure or higher taxation of large mining projects is that the taxes, fees, and royalties they pay is very small. So there is a need to further raise the tax.

At the House of Representatives, there are bills proposing to raise the mining excise tax from 2% to 10% to generate bigger taxes from the industry.

However, is it really true that mining taxes and fees are “very small” so government should raise them (or even shutter their operations to preserve the environment?)

Table 1 was constructed to test their arguments’ validity. Please have patience reading what the numbers in various asterisks mean.

  

These numbers show two important points.

One, of the Philippines’ 30 million hectares total land area, only 700,300 hectares have mining permits from 319 companies, of which only 81,000 hectares are in active mining. The balance of roughly 620,000 hectares are for the various structures like offices, housing, school buildings, hospitals, sports, and training centers for personnel; roads, mined out areas for rehabilitation; future mining sites.

Two, these 81,000 hectares or 0.27% of total land area contributed an estimated of P420,000 per hectare in taxes, fees, and royalties to the national and local governments in 2016. That is more than six times the overall national taxes per hectare of the country.

Hence, the argument by many anti-mining groups that “government tax revenues from big mining is small so government should overtax, suspend, or close as many big mining firms as possible” is wrong. It is invalid.

Note further that the numbers on mining taxes and fees do not include mining expenses that go direct to the communities as mandated by law, not to the government. These include spending like (a) Social Development and Management Program (SDMP), (b) the annual Environmental Protection & Enhancement Program (EPEP), (c) Community development program (CDP), (d) Environmental work program (EWP), (f) Safety and health program, others.

Plus mandatory environmental funds like (a) Rehabilitation cash fund, (b) Mine monitoring trust fund, (c) Mine waste and tailings fees reserve fund, (d) Final mine rehabilitation and decommissioning fund, (e) Environmental trust fund, (f) Mine rehabilitation fund (MRF), and several others.

Two of several fiscal reforms in the mining industry to make the taxation system more transparent and easily understood would be the following:

One, MGB is required to disclose in its regular “Mining Industry Statistics” the annual cost of various mandatory/obligatory programs and funds as mentioned.

Two, the mining excise tax of 2% can be raised to 6% or 10% or even higher but other taxes and regulatory fees, mandatory programs, and funds should be reduced or abolished. It is not possible to keep raising the taxes, fees, royalties, mandatory programs and funds without resulting in business distortion. Like honest firms closing down or going bankrupt while others will be forced to become dishonest just to remain in business.

MGB should show more updated data about small scale mining — estimated land area covered, gold production, taxes and fees paid, others. Lots of environmental damage with zero mine rehabilitation or reforestation after are done by small-scale mining, like those in Mt. Diwalwal as mentioned by President Duterte during his second SONA last July 24.

Government should always bear in mind the importance of the rule of law. Mining laws should apply to both big and small players, foreign and local. Creating exceptions and favoritism makes a mockery of the law.

Bienvenido S. Oplas, Jr. is the President of Minimal Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.

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See also:

BWorld 148, Energy Trilemma Index 2016, September 16, 2017 

BWorld 149, Free tuition and irresponsibility, September 17, 2017 

BWorld 150, Rising state-inspired murders and budget 2018, September 18, 2017

Mining 35: Opposition to Mining, Where Do They Come From?

In my previous article in this subject, I said that the EITI Secretariat has declined my belated application to join their conference last month. Upon the request of a friend who is a DOF official, the secretariat invited me to attend the conference of Day 2.

Below is my article today in Mining Week.
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Other than the usual left-leaning and anti-capitalism, anti-globalization groups, there are many other camps and individuals who oppose large-scale mining (metallic and non-metallic) for other reasons. What are these reasons and where do they come from?

During the “Conference on the Adoption of the 2013 EITI Standards” last September 27, 2013 at Crowne Plaza in Ortigas, sponsored by the Extractive Industries Transparency Initiative (EITI) International Secretariat and the World Bank, Dr. Elmer Billedo, Assistant Director of the Mines and Geosciences Bureau (MGB, DENR) was one of the speakers. Among the slides he showed was this one.

It is a useful illustration and it shows that the major groups of people who oppose the industry come from the following:

1. Politics and politicians, either for personal or professional reasons, the painted or assumed destructiveness of mining is exaggerated, begging for more regulations and taxation on top of existing ones, if not outright banning of LSM.

2. Propaganda groups, especially the anti-capitalism groups who dislike big corporations and multinational firms extracting rocks and soil from the Philippines and exported to other countries.

3. Lack of information by the public, media and other civil society organizations. Many are not aware that “responsible mining” is possible and is in fact happening in many large mining projects in the country.

4. Legacy mines, like the mining disaster in Marinduque about two decades ago. Then the occasional fatal landslides in Mt. Diwalwal and other areas where small scale mining (SSM) is the dominant practice, but is attributed to large scale mining (LSM).

5. Current violations of environmental standards, by some LSM companies, and is more rampant among SSM but is attributed by the public to LSM.

6. Lack of benefits, coming from some mine workers themselves and residents of the mining village. Sometimes this is an objective assessment but oftentimes, it is a subjective and biased opinion. For instance, some residents who are not connected with the mining company may feel that they should be “entitled” too to some benefits like free or highly subsidized healthcare, education, given by the mining  firm.

As a result of such opposition, (a) local government units (LGUs) are issuing more ordinances and resolutions against mining; (b) Congress is considering Bills declaring “mining-free” provinces, cities and municipalities; (c) MGB-DENR and BIR-DOF are increasing regulatory requirements and taxes; and (d)

Advocacy groups  are filing complaints and cases against mining projects, both in Congress and the Supreme Court.

During the open forum, I spoke and shared my observation that many anti-mining groups are easy to address if they are shown with lots of data, that responsible mining can and does exist, that LSM are already over-taxed, that the total area under LSM is very small compared to the total land area of the country. That I was surprised that my former teacher at the UP School of Economics (UPSE), Prof. Winnie Monsod, is misinformed and thinks that mining tax is only the 2 percent excise tax, that is why she is advocating that the Malampaya natural gas sharing scheme of 60-40 of net revenues going to the government and the private developer respectively, should also apply in mining.

Then I suggested that the MGB, DOF and DILG should produce more detailed data available online, like breakdown of mining taxes and fees collected by both national and local governments from LSM, SSM and large non-metallic mining. If the public can see these data for themselves, negative sentiments against LSM and mining in general can decline.

The participation of the Philippines at the EITI is a good move. The regulated and taxed companies can declare how much they have paid to the barangay, city/municipal and provincial governments, the royalties and social development management projects (SDMP) given to communities and people’s cooperatives, and to the MGB, BIR, BOC, SEC and other national agencies. These agencies will also be forced to report how much they collected from each mining enterprise, small and big alike.

Of course there are other costs that are not reported by the mining firms. Like special and monetary requests by the LGUs and national agencies, otherwise these government officials will harass the mining firm, if not disallow its continued operation. This data is hard to produce.

Nonetheless, information is empowerment. The more information that will be available to the public, the lesser will be the misconception and unnecessary opposition  to mining.

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See also: 

Mining 31: Prof. Winnie Monsod's Faulty Tax Proposal, August 22, 2013 

Mining 32: Output Contraction in 1st Half 2013, September 02, 2013 

Mining 33: Job Creation, Taxes and the Politics of Envy, September 13, 2014 

Mining 34: EITI, Taxes and Other Costs of Regulations, September 24, 2013

Mining 5: Benefits of Mining Even Without Taxes

Last Thursday, December 06, I recommended this article in my facebook account and two friends, Jayant Bhandari and Citos Buenaventura, commented on my fb wall. It was a nice, civil discourse and debate.

Portions of the article say:
"Funny though, the government does not seem to know its own anti-mining proclivities. This seems to be the case as the agency in charge of the sector had to backpedal on its target of $2 billion in mining investments this year after the latest figures showed a 50 percent plunge to $160 million in the first half. The government agency admitted that “uncertainties surrounding the government's mining policies” were to blame for the huge shortfall. Well, duh.

"It stands to reason that the government’s “substantial” lean towards the cause of the anti-mining environmentalists would leave no room for compromise with the “pollutive” mining sector. This absence-of-a-middle-ground policy is a bit myopic: the environmentalists state that we ought to leave nature pristine for our children’s children and our grandchildren’s grandchildren.

"But so long as gold prices remain elevated at over $1,700 an ounce – valuing one listed mining company’s ore reserves underground at over P250 billion – and so long as man remains motivated by profits, then it’s quite obvious that if we don’t mine it now, then it would surely be dug from the ground by our grandchildren’s grandchildren. Mining the gold cannot be stopped. The only thing to do is to make sure that the extraction will be responsibly done."

Here are our exchanges from December 6-7. Both Jayant and Citos gave me implicit permission to use our exchanges in this blog post.
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Citos: If the majority want to concede mining profits for the sake of a better environment, that is their prerogative. Same thing with deforestation.

The profits of mining has traditionally been very concentrated in the hands of a few and in some cases foreign beneficiaries, for most of the Philippine population, there is little incentive to support the mining industry in general. We hardly see the benefits of mining, but when mining spills and habitat destruction happen, the consequences are all too visible.

Nonoy:  Hi Citos, "We hardly see the benefits of mining" -- your cp and laptop, your car or bicycle, your house or office building, your school or shop, your electricity and electronic cables other gadgets, are ALL products of mining. Not one of those came from agri or fishery or forestry or from thin air. ALL are products of mining. No mining, no modern life, back to the caves,  Fat-Free Econ 3: Mining and Environmentalism

Jayant:   Citos: If the locals who own the land do not want mining done that is understandable. But what actually happens is that locals and government let companies develop a project and then start creating problems when the companies have invested a lot of money. This is nothing but a lack of integrity and cheating. But the worst suffers of this cheating is the locals. The risk associated with mining is very high, so investors want more returns, part of which could have otherwise gone to the locals. Moreover, such difficult environment means that in Philippines good people do not want to come, leaving you with crooked miners.

Citos: Hi Nonoy, We are talking about mining in the Philippines. My bike and car were mined from elsewhere. As an industry, mining in the Philippines has not benefited a broad swath of the population. Try to write legislation that opposes call centers, I am sure you will get spontaneous opposition from a lot of people. I do not see the same happening in mining. The employment is quite low, less than 200,000 if this source is correct:

http://philippinemining.imaginet.com.ph/mining_articles/employment

Nonoy: We are lucky that people abroad have allowed mining otherwise we will have no cars, buses, motorcycles, airplanes, buildings, laptops, cps, electricity here. Bottomline, we benefit from mining, whether it's done in Africa or Australia or Indonesia or in the Philippines.

About "low employment", naturally, because mining of raw products is limited to a few areas. See also the data in agri, fishery and forestry, now constitutes a little over 10% of GDP. This is because employment in poultry is relatively small but see after the dressed chicken (counted in agri sector) has been sold as litson manok or chicken nugget or chicken curry or chicken adobo, etc. in millions of food stalls, restos, hotels. Employment and GVA here is no longer counted as agri employment and GVA but services sector employment and GVA.

Citos: Hi Jayant, I will not deny there is corruption in local governments which makes mining less attractive for good investors. I have very close experience with that. But that is the problem of the investors as it was for people close to me. From the point of view of the common person on the street however, mining has not benefited him. The profits of mining goes to the mining investor, then the local government official who allows the concession to operate. The local population in theory will benefit from the royalty being used for development/investment in their area. The most likely case however is that the royalty is misused by local authorities and do not turn into projects that benefit the area.

Nonoy: Taxes, fees and royalties of large mining companies (the small scalle mining do not pay any tax or royalty) are just gravy to the public. We benefit already from mining from the various mineral products alone, metallic or non-metallic, as I mentioned above. It's like the agri sector, even if the agribusiness companies do not pay a single tax or fee to the govt, we the public already benefit from the chicken, poultry, pork, cattle, veggies, tilapia, bangus, other crops and products that they produce and sell to the public. Taxes are just gravy and top off to the beneficial effects of agri and mining.

Jayant:  I am not sure why should you be obsessed with whether mining has helped the common man or not. Why should it be my problem or yours if someone does something and he profits from that? That is, unless I am coming from envy. In other words... Does what you do you do only with common man in mind? My view is that we add the most value to the society by focusing on us and our families. That is how I have seen people living, but then they don't want others to live that way---this mindset leads to social poverty, which is the case with Philippines. (I have a lot of experience with mining in Philippines. I love the country but absolutely hate the DIY economics of the those who live there.)

Citos: Hi Nonoy, can you name one metallic product you own where you are sure the material came from a local mine? I can't, probably most Filipinos can't either. Most of our metal products are imported, and I believe most of our metallic mining production is exported. What does that mean for me? I do not need local mining to get the products I use. I do not care if my bike came from an aluminum mine in China or Australia, local mining has no contribution that matters to me which is why I have little inclination to defend it.

Hi Jayant, legislation in a democracy is partly a popularity contest. Our president, it seems is more cozy with environmentalists who want to preserve nature at the expense of mining. Now if mining benefited more people in my country, there would be a better balance between leaving the minerals under the ground and preserving nature. Since the benefits of mining has been so concentrated to a few, there is then no popular movement to promote mining.

Mining is extraction of resources owned in common by citizens of the country. Granting anyone the rights to mine is a privilege granted by the state and local governments. So compared to other industries, it is not a purely private venture like writing computer code or building chairs. There is the element of an agreement between the miner and the people so that both parties will benefit.

 Mining is in trouble because it does not have the popularity it needs to secure that agreement. Under a dictatorship, or a corrupt government, mining companies only had to make a deal with the politician in charge. In a democracy, mining companies have to convince people that the venture will be worth the compromises in terms of degradation of nature and risk of pollution accidents.

Nonoy: From the link that I gave above, "A typical cellphone is made up of cobalt, silver, gold and palladium - all are mineral products. Even a barong-barong or bahay kubo will require nails, hammer, saw or bolo/itak - all from mining." From copper alone, people produce wires and cables for power generation, transmission, distribution, telecomms, electronics; in motor rotors, coils, copper alloys, etc. etc.

Mining is in "trouble" because ignorance and misconception are larger than knowledge. It's like coal power plants, right now the Philippines, Luzon especially, is dependent on coal by nearly 40 percent of total power generation yet many people hate coal simply because they believe in WWF, Greenpeace and other climate alarmists.

Right, mining is a privilege, not a right. The same with food, medicines, clothing. People who do not want to work but expect the govt to feed them should instead starve rather than live. Getting a mining permit is easier if knowledge is larger than ignorance and misconception.

Citos: Hi Nonoy, you can buy fabric and sewing machines and sew your own clothing as a completely private venture. Mining is different, you need a concession from the local government of the area that you will extract minerals from. If the local government is corrupt, you just pay him off. If the local government is doing it's job, it will have to balance cost and benefits with the people and get it's constituents' considerations before approving the venture. The two are not the same in that mining has a much more public aspect involved vs cloth manufacturing.

Nonoy: Right, it's one thing to get a permit from LGUs and the DENR-MGB, and another thing to say a sweeping "we hardly see the benefits of mining" because the benefits of mining is right there in your hands, in front of your eyes -- your cp and laptop, your watch and car or bicycle. With gold hitting $1,700+ an ounce, gold mining companies, including small scale gold mining, is rising, it should be easy for a mining company to put up a whole school, or whole hospital, in the main city or municipality and hence, hope to get public disapproval. Corrupt LGUs, corrupt NGOs and media, are another breed because they want huge money for their own personal bank accounts only.

Citos: Hi, when I wrote "we hardly see the benefits of mining", I was referring to local mining. My apologies if I was not clear enough about it.

Nonoy: Even to say "we hardly benefit from local mining", it is still wrong. I do not know how much of all electrical cables running from Sulu to Aparri are from imported copper, but it seems impossible that they are 100 percent imported, there should coming from local copper mines. BSP is very explicit that its gold reserves are from local, the small scale mines in particular that do not pay taxes and royalties as these are mostly informal companies that are not registered with SEC or DTI or DENR.

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See also:
Mining 1: Mineral Rights, September 09, 2010
Mining 2: Insurgents and Mining Companies, October 25, 2011
Fat-Free Econ 3: Mining and Environmentalism, March 15, 2012
Mining 3: Debates on Mining, March 17, 2012
Mining 4: EO 79 and the MICC, July 12, 2012