Mining 38: Canada's $7.8 B a year tax revenues vs PH's $0.3 B

* This is my article today in Mining Week.
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Two weeks ago, this report from Resource Clips bannered a bold story, Mining industry has paid Canada $71 billion in last 10 years. Excerpts:

“The Mining Association of Canada released its annual report on December 3 about mining industry payments to Canadian governments, prepared by ENTRANS Policy Research Group. Now in its tenth year of publication, the report found mining payments to federal and provincial government coffers total an estimated $71 billion from 2003 to 2012 in aggregate mining taxes and royalties, corporate income taxes and personal income taxes paid by mining sector employees….

“According to Natural Resources Canada, the Canadian mining industry employed more than 418,000 workers across the country in 2012—representing one in every 41 Canadian jobs. Moreover, mining workers earn the highest wages and salaries of all industrial sectors in Canada. The average weekly pay for a mining worker in 2012 was $1,599, which surpassed the earnings of workers in forestry, manufacturing, finance and construction.”

The 71 billion Canadian dollar is equivalent to around US$ 78 billion at average exchange rate of CA$1.1/US$ exchange rate from 2003-2012. That is an average of US$ 7.8 billion a year, wow.

The Philippines, which is supposed to be a mining powerhouse with an estimated mineral potential value of around US$ 1 trillion, is not able to optimize both its mining corporate revenues and taxes. From 2008 to 2011, the Philippine government was able to collect only around $310 million a year in corporate taxes, fees and royalties, from large-scale mining companies.

Source:  Dr. Elmer Billedo, Assistant Director, MGB-DENR. Presentation at an EITI Conference, September 27, 2013, Crowne Plaza, Ortigas, M.Manila.

The above Philippine data of mining taxes, fees and royalties is understated because (a) it covers only large scale mining firms, and excludes small scale mining that produce huge amount of gold via the black market, and (b) personal income taxes, social security contributions by workers and officials of large mining firms are also not included. By how much is the projected understatement? Maybe +/- $150 million per year, a rough estimate.

The way business uncertainty and financial instability is inserted in the country’s mining sector, both the economy and the government are the net losers here, as shown by preliminary 2012 and 2013 data from the MGB-DENR.

Source: http://www.mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pdf

Mining gross value production in 2012 was comparable to that in 2010 but lower than in 2011. Production this year, if the first half figures are the basis, should be less than P100 billion, which is even lower than 2009 and 2010 production.

In terms of taxes, fees and royalties collection, this year can be a catastrophe compared to collections in 2008 (P7.7 billion), 2009-2012.

The national government itself should be alarmed of this trend. If certain sectors are against large and corporate mining due to environmental, cultural, political or religious reasons, the national government should help explain to them the threat to people’s livelihood and fiscal shrinkage of collections from the sector. Very often, the same group of people who express strong opposition to large scale mining are also lobbying for more government welfare and subsidy programs, which are sourced from taxes and regulatory fees collection.

The $0.3 billion Philippine government collections from the large mining firms should see shrinkage in the coming years if anti-large mining and anti-capitalism sentiments are not checked and neutralized.

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See also: 

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

Mining 35: Opposition to Mining, Where Do They Come From?, October 15, 2013 

Mining 36: Tax that can Wipe Out All PH Public Debt, October 22, 2013 

Mining 37: Adverse Selection of Anti-Corporate Mining View, November 21, 2013

Mining 36: Tax that can Wipe Out All PH Public Debt

* This is my article yesterday in Mining Week.

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The mining industry is a very useful sector because many of the things that humanity needs in modern life come from mining, like cellphones, tv, cars, buses, electricity, appliances and so on. Yet mining is also highly criticized if not demonized for the various environmental damages attributed to it, real or imaginary.

The Extractive Industries Transparency Initiative (EITI) is an international voluntary system among governments and big mining worlds in many countries that help clear this issue of whether mining indeed deserves to be demonized or be protected, at least on the taxation and output transparency aspect. Its focus is on making revenue payment and collections from the extractive sectors like oil, gas and mining, become more transparent to the public. In the process, this enhances government revenues.

The EITI International Secretariat and the World Bank Washington office jointly sponsored the “Conference on the Adoption of the 2013 EITI Standards” last September 27, 2013 at Crowne Plaza in Ortigas. Among the speakers was Dr. Elmer Billedo, Assistant Director at the Mines and Geosciences Bureau (MGB) of the Department of Environment. This is one of the slides he showed.

Table 1. Mining Industry Performance, 2008-2012

There is no breakdown how much of those gross value production came from (a) large scale metallic mining (LSMM), (b) small scale metallic/gold mining (SSM), and (c) large non-metallic mining (LNMM) like cement and coal firms. Table 2 below will show breakdown.

Many sectors look down or understate the contribution of mining in the economy, as shown by its low share of only 0.7 to 1.0 percent of the gross domestic product (GDP) and only 0.5 to 0.7 percent of total employment in the country. With such a low share, then the country can possibly afford to shut down all mining companies and give the displaced workers alternative work elsewhere, particular in the agriculture, industry and service sectors.

This analysis is wrong. No mining raw materials and products means little or no industrial output as the iron, nickel, copper, chromite and other metallic products are the raw materials to produce various machines, steel and construction materials, cell phones and various electronic products and appliances. If these manufactured products are not available or present at very small amount and very high prices, then construction, transportation, telecommunications, trading and other service sub-sectors will have little or no output.

The analogy may also look like this. Raw and live chicken production is counted in the agriculture sector. Once it becomes litson manok or chicken adobo or chicken curry in food shops, it is counted under the service sector. If it is transformed into chicken cubes or chicken fillet or noodles, it is counted in the manufacturing and industry sector. Valuation in the industry and service sectors is a lot higher than those in the agriculture sector. A P115 per kilo live chicken raised for a month in the chicken farm can become P230 or higher as litson manok or a doubling of gross value after just a few hours.

Thus, raw, lower value mineral products actually have huge multiplier effects in the economy, from the agriculture to industry to service sectors. Even a 1 percent mining share of GDP can enable all the other  sectors to have high share of GDP.

Below is a breakdown of output by the three producing sectors, namely LSMM, SSM and LNMM. Data from the MGB

Table 2. Mining Industry Output and Taxes, 2008-2012

Note that those taxes and fees generally come from LSMM as the firms here are highly regulated and monitored by the BIR-DOF, MGB-DENR and local government units (LGUs). Such taxes, fees and royalties comprise between 43 to 60 percent of the LSMM’s net revenues.

The Philippines has been ranked by the US Geological Survey as being the biggest nickel producer worldwide. The estimated nickel reserves though is not very big compared to those in Australia, Brazil and Russia.

Table 3. Philippines as the world’s biggest nickel producer

During the open forum, I suggested that the BIR-DOF, MGB-DENR and LGUs-DILG should make data on  mining taxes, fees and royalties become more easily available online. Lack of updated and official data makes the anti-mining sentiment and biases become more convoluted. For instance, even known economist Ma’am Winnie Monsod is misinformed to insist that the government collects only two percent excise tax from LSMM which she says is peanuts, and proposed the Malampaya natural gas revenue sharing arrangement where the government gets 60 percent of the net revenues. The IMF says that if the Average Effective Tax Rate (AETR) formula is applied, LSMM in the country is paying up to 60 percent of their net revenues to the government, both local and national.

There is huge industrial potential for the country given our high mineral deposit and wealth. If those companies and investors are following existing environmental regulations, paying various taxes, fees and royalties, spending extra for the community via social development management program (SDMP), and creating lots of direct, indirect and auxiliary jobs to the people especially in rural municipalities and provinces, then they should not be demonized by the public.

With a $0.9 to 1.0 trillion value of mineral potentials, with potential net revenues of $400 billion (about 60 percent of gross production goes to operating costs like personnel salaries, depreciation of expensive capital equipment, fuel and electricity, etc.), and if government will collect about half of that in the form of taxes, fees and royalties, that is a whooping $200 billion revenues or P8.6 trillion at P43/$ exchange rate.

This amount can practically wipe out the total public debt of P5.45 trillion as of June 2013. It is a substantial or giant revenue that the government and the rest of society should recognize.

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See also: 

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 35: Opposition to Mining, Where Do They Come From?, October 15, 2013