BWorld 196, Mining tax and TRAIN

* This is my column in BusinessWorld last week, March 15, 2018.

“Government does not tax to get the money it needs; government always finds a need for the money it gets.”

 — Ronald Reagan, former US president

Under the Mining act of 1995 (RA 7942), mining firms pay, among others, an excise tax 2% of sales. For many years and decades, this has been deemed “too low” despite the presence of many other taxes, fees, royalties, mandatory contributions, obligatory community expenditures.

So under the new law Tax Reform for Acceleration and Inclusion (TRAIN), RA 10963, the mining excise tax has been raised from 2% to 4%. And this was a belated insertion because this idea was not present in both House and Senate bills before the Bicameral Committee meetings.

Now there is TRAIN 2 bill in Congress and the Department of Finance (DoF) has voiced out that it wants all tax reforms ratified by December 2018. The DoF wants a “comprehensive mining tax that will give the government a bigger share of miners’ revenues.” Translation: another round of mining tax hikes.

Philippine mining taxation is not exactly modest or low. Globally, it is somehow midway based on taxes, fees and royalties paid to the government, national and local. Or high if mandatory and obligatory expenditures for communities are included, like the Social Development Management Program (SDMP) that amounts to hundreds of million pesos yearly.

One international non-governmental organization, the Natural Resource Governance Institute (NRGI), produces an annual report called the Resource Governance Index (RGI) that measures how good or bad the governance of extractive industries are — oil, gas and mining (metallic and nonmetallic). The index is constructed using a framework of 149 critical questions answered by 150 researchers, drawing upon almost 10,000 supporting documents. Scores are on a scale of zero to 100 at each level of the index.

The RGI is composed of three components and several sub-components:

1. Value Realization — sub-components are licensing, taxation, local impact, and state-owned enterprises.

2. Revenue Management — national budgeting, subnational resource revenue sharing and sovereign wealth funds.

3. Enabling Environment — open data, political stability, control of corruption, rule of law, regulatory quality, government effectiveness, voice and accountability.

The RGI 2017 report was released last year covering 89 country-level assessments (in eight countries, both oil-gas and mining sectors were assessed). In the table below, I did not include countries in the oil-gas sectors, also low-score African, S. American countries after S. Africa, but I included low-score ASEAN countries to have a regional overview (see table).

So in the overall score, the Philippines ranked 21st out of 89 country-assessments, it belonged to the top, which is good. In the component Value Realization, it scored a midway 55 and in sub-component taxation, it scored high at 60. Which means that the statement “Philippines mining taxation is low” is not correct.

In that report, I was surprised to see that there is a government-owned Philippine Mining Development Corporation (PMDC). It is not involved in actual mining exploration and extraction though, perhaps one of those white elephants among the remaining government-owned and controlled corporations (GOCCs).

Among the big state-owned mining firms in the world are Codelco (Chile, 2016 revenue was $11.69 billion), Erdenes Mongol (Mongolia, $1.25 billion 2016 revenues) and Antam (Indonesia, $680-million revenues).

Aside from TRAIN’s tax-tax-tax in the sector, there are other proposals that seem idiotic and too interventionist. Like a bill in Congress, HB 5674, requiring a legislative franchise as prerequisite to the issuance of a Mineral Agreement or Financial and Technical Assistance Agreement (FTAA) for any mining project in the Philippines. Why bring in the legislators and politicians on top of national and local bureaucracies inspecting and investigating companies even before they can do mining exploration and extraction?

Then there are other bills declaring this and that province to be a “mining free zone and providing penalties therefor.” Example: HB 6727 for Nueva Vizcaya. Not all provinces have big mining potential and even in provinces which have such potential, not the entire province is resource-endowed.

Mining is either good or bad. If it is bad, people should stay away from using materials that use mining products so that they can reduce or avoid creating new demands for mining. Like cars, TV, mobile phones, computers, watches, electrical wires and cables.

If mining is good, then get the good practices in other countries and have them applied here. But blanket prohibitions like “no open-pit mining,” “no mining in this province,” “over-tax mining” should be avoided because they are based on emotions, not reason and economics.

Government should prioritize reason and economics in its legislation and implementation. Create values and consumer products from nature, create lots of jobs for the people, generate taxes for its social-economic programs.

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See also: 

BWorld 192, Cobalt mining and TRAIN, March 16, 2018
BWorld 193, TRAIN, inflation and emerging DOE price control, March 16, 2018 

BWorld 194, How ‘pro-labor’ policies work against labor, March 17, 2018 

BWorld 195, Health alarmism in TRAIN sin tax hike, March 19, 2018

Mining 24: Casino-Hontiveros Mining Socialism is Off Tangent

Today is part 2 of the oral debate at the Supreme Court between the anti-corporate mining groups led by former Party-list Congressman Teddy Casino and Congresswoman Risa Hontiveros, and the Chamber of Mines of the Philippines (COMP). The former simply wants the government to confiscate as much money and revenues from the big mining corporations as possible because of their exploitation of the country’s mineral and forest resources, while being silent about similar exploitation by  the so-called “small scale mining” groups and individuals.

While data on various payment in taxes, fees, royalties and penalties made by large mining companies are available (See Mining Taxation and Government), there is zero data available for taxes and other payment by the small scale metallic (gold especially) mining. See also this comparison of mining taxation policies of Chile vs. the Philippines.

The petitioners want the SC  to declare Secs. 80 and 81 of RA 7942 as unconstitutional and then what, the SC will make its own tax rates in mining and insert them as the new Secs. 80 and 81 of this law? Can the SC legislate taxes and tax rates? This is not possible unconstitutional itself because such function is assigned by the Constitution exclusively to Congress, the House and Senate crafting a synchronized bill, and must be signed by the President.

I am wondering why these ex-legislators simply cannot wait for the new 16^th Congress to convene just four weeks from now and introduce an amendment to RA 7942, say government should get 90 to 95 percent of the net revenues of big mining companies and go for explicit mining socialism. Teddy Casino and Risa Hontiveros are socialists anyway, I do not think they will deny their affinity with near- or full-socialism and have social and economic equality in society, demonize and over-tax the rich, over-subsidize the poor including the lazy and irresponsible.

Below are some news reports on this subject.

(1) Chamber of Mines files SC motion to nullify Hontiveros petition

Philippine Star, June 21, 2013

COMP argued that since the La Bugal ruling – the longest in Supreme Court history which took six years for the high tribunal to deliberate on – there has been no material change in the circumstances of the Philippine mining industry.

“There is no compelling reason for the high tribunal to abandon its previous ruling,” COMP said in its motion.

Sec. 80 stipulates that the government share in mineral production sharing agreement (mpsa) is limited to excise taxes.

Sec. 81,on the other hand, limits the government’s share in Financial and Technical Assistance Agreement  (FTAA) to taxes, fees and royalties.

COMP said about P173 billion ($4 billion) in mining investments have been poured into the country since 2004 following the high court’s ruling, making the industry a significant contributor to national development, added COMP….

(2) SC to resume debates on constitutionality of mining law

Sun Star, June 24, 2013

Debates started last April as the SC wanted to know whether the mineral production sharing agreement (MPSA) is unconstitutional for allowing an inequitable sharing of wealth (Section 80) and the government surrenders control and beneficial use of mineral resources under the financial and technical assistance agreement (FTAA) under Section 81.

The Chamber of Mines of the Philippines (COMP)… also said an equitable revenue sharing in mining is a question for the legislative and executive branches of government to decide....

(3) On eve of 2nd day of SC oral arguments, groups push for alternative mining law

GMA News, June 24, 2013

In a press conference in Manila, Erwin Quinones of the SOS-Yamang Bayan, one group opposed to the law, said that they wanted an "Alternative Minerals Management Bill", in which mining activities are "regulated and needs-based."

Quinones said the alternative mining law should also pave the way for the creation of a "minerals management council" that would ensure the Philippine Government's interests are protected.

"In its present form the so-called revenue regimes of the Mining Act reveals that with its many fiscal incentives and tax holidays, it is a one-way assurance for mining companies get their profits while the Government and the Filipino people bear the brunt of the social and environmental risks," the groups said.

(4) Miners want to answer mining foes in SC

Philippine Daily Inquirer, June 25, 2013

… In its 38-page comment in intervention, the Chamber of Mines asked for the dismissal of the petitions for certiorari and prohibition filed by Hontiveros and her copetitioners, citing three reasons.

These were: That the arguments raised by petitioners had already been passed upon and disposed of against petitioners in the case La Bugal-B’laan Tribal Association v Ramos, which the Supreme Court made a landmark ruling; that the high court should stand by its ruling here; and that the legislative and executive branches should decide on the question of what is an equitable revenue sharing from mining.

The chamber also said the petitioners had not shown any compelling reason to abandon the La Bugal B’laan case as it described their arguments to be a “mere rehash of those already overruled” in the same case.

It also held that there was no actual case or controversy in which to relitigate the case and that petitioners did not complain that they had been injured because of these provisions.

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See also:
Mining 21: Chile Policies, May 21, 2013 
Mining 22: Philippines as EITI Candidate, June 05, 2013 
Mining 23: On the Proposed 10 Percent Gross Revenue Tax, June 06, 2013

Mining 13: Timeline of Policies

This afternoon, there will be an oral argument and debates at the Supreme Court in Baguio City. Two petitions by Risa Hontiveros, et al challenge the constitutionality (for the second time) of RA 7942 or the Philippine Mining Act of 1995, particularly Sec. 80 and 81 of the law.

In the SC website, it says,

Petitioners argue that: (1) section 811 of the Mining Act of 1995 is unconstitutional because: (1) it violated the rule on delegated legislation; (2) the Secretary of the DENR (public respondent) acted with grave abuse of discretion resulting to lack or excess of jurisdiction in the issuance of DAO 07-12; and (3) both section 81 of the Mining Act and DAO 07-12 are unconstitutional because they allow inequitable sharing of wealth contrary to Article XII, Section 1, par. 1 and Section 2, par. 1 and 4 of the 1987 Constitution.

Will watch the results of the debate later today and tomorrow.

Meanwhile, below is a short timeline of various policies governing the mining industry in the country. I saw a rappler report on timeline mining. It was highly incomplete though as there are many other DENR Administrative Orders (DAO) and Department Memorandum Circulars (DMCs) affecting the industry. I skipped several DAOs and DMCs in producing this list.

Presidential Decree 1899, January 23, 1984
Defining small-scale mining as "artisanal", thus disallowing sophisticated equipment, involving minimal investments in infrastructure and processing plants, and relies on manual labour.

Republic Act 7076, June 27, 1991
People’s Small Scale Mining Act of 1991, "Minahang Bayan." Forms the Provincial/City Mining Regulatory Board that supervises small scale mining operations alongside the chiefs of the Environment Department and Mining Bureau.

Department Administrative Order (DAO) 1991-66, December 27, 1991 
Declaring certain parcels of Agusan-Davao-Surigao Forest Reserve as non-forest land open for small-scale mining. Parts of Diwalwal gold-rush area in Davao region was open to small-scale mining.

DAO 1992-34, July 14, 1992

Implementing Rules and Regulations (IRR) of RA 7076. 

RA 7942, “Philippine Mining Act of 1995”,  March 3, 1995 
Liberalizes foreign investments in the sector, involves the Local Government and Indigenous Cultural Communities in minerals exploration. Followed by a Financial and Technical Assistance Agreement (FTAA) with foreign-owned Western Mining Corporation Philippines (Tampakan mine).

DAO 1995-23, August 15, 1995

Implementing Rules and Regulations (IRR) of RA 7942. 

Jun. 19, 1995 
La Bugal-B'laan Tribal Association questioned the Constitutionality of RA 7942 and its IRR, particularly the FTAA, which allows foreign ownership, before the Supreme Court.

DAO 96-40,

Revised IRR of RA 7942.

Proclamation No. 297, November 25, 2002 
Establishing the 8,100-hectare Diwalwal Mineral Reservation.

Joint MC DENR-DTI 2003-02, September 10, 2003

Establishment of a Mining Investment Assistance Center.

SC ruling, RA 7942 as unconstitutional, January 2004
The Supreme Court en banc said the Mining Act of 1995 is unconstitutional since it allows foreigners to engage in mining through FTAAs, which is contradictory to the 1987 Philippine Constitution. 

SC reverses, declares RA 7942 as constitutional, December 2004
The Supreme Court reversed previous decision on the unconstitutionality of the Mining Act. Associate Justice Artemio Panganiban pens a resoution that says "full control is not anathematic to day-to-day management, provided that the State retains the power to direct overall strategy". This gives the government a go-signal to issue FTAAs.

DAO 2007-15, July 19, 2007

Amendments to DAO 96-40.

DMO 2009-01, January 30, 2009

Delegating the authority to issue Mineral Ore Exports Permit to the Provincial Governors concerned.

DMO 2010-08, June 29, 2010

Consolidated DAO re IRR of RA 7942.

DMO 2011-01, January 18, 2011

Suspension of acceptance of all mining applications.

EO 79, July 06, 2012

Institutionalizing and implementing reforms in the Philippine mining sector.

Imposes a moratorium on new mining contracts, creates the Mining Industry Coordinating Council (MICC). identify no-go areas for mining. (7 pages)

DAO 2012-07, September 10, 2012

Implementing Rules and Regulations (IRR) to EO 79 (16 pages)

DMO 2013-01, February 21, 2013

Increasing the minimum capital requirements for mining applicants – EP, MA, FTAA.

Authorized capital from P10 million to P100 million.

Paid up capital from P2.5 million to P6.25 million.

DAO 2013-10,  February 21, 2013

Increasing fees for mining applications.

Exploration Permit (EP) from P60/hectare but not less than P50,000 per application, to P300/hectare but not less than P200,000 per application.

Mineral Agreement (MA) from P60/hectare but not less than P50,000 per application, to P300/hectare but not less than P300,000 per application.

FTAA from P60/hectare but not less than P190,000 per application, to P300/hectare but not less than P500,000 per application.

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See also
Mining 9: Supreme Court Hearing on RA 7942, March 27, 2013
Mining 10: Urban Tailings vs. Mining Tailings, March 31, 2013
Mining 11: Big Projects in the US, UK, Canada and Australia, April 04, 2013 
Mining 12: Political Risks vs. Natural Risks, April 09, 2013

Mining 9: Supreme Court Hearing on RA 7942

This morning, I saw this poster in the facebook wall of one or two friends, about the Mining Act of 1995 (RA 7942). I think this was made by the Legal Rights and Natural Resources Center, Inc. (LRNRCI).

Three things caught my attention. One, oral debates at the Supreme Court. Some groups could be contesting the constitutionality of that law until now. But it’s an 18 years old law now, why would its Constitutionality be questioned and not earlier?

This law is a product of Congress, not the SC. So people can initiate and support new legislation that will scrap or significantly amend that law. Why can't they go through this legislative process? 

Two, Tax Regimes. The focus of the oral arguments is on taxation? But a new bill on mining taxation will be introduced when the new Congress resumes in late July this year, so why would the Supreme Court hear arguments on things that are Constitutionally a function of the Legislature?  I also read that the BIR made recent Revenue Regulations that seem to reverse the Mining Act on taxation. The Act says taxation should start "after a cost recovery period" or similar term, while the BIR wants taxation to start "during cost recovery period." The BIR is the mini-legislator and implementer at the same time, weird. 

Three, the photo. Am curious which mining project it came from, and if it is the actual mining site or a mine tailings pond? If it is the latter, then that company is doing responsible mining, preventing mine tailings from going into the sea. Mine tailings ultimately dry up, wild grasses can grow on them later. A company may also cover a dried up tailings pond with ordinary soil, then plant trees on them. After a few years, there is zero trace that it was once a mine tailing pond.

Then there were two news reports yesterday about this event in Baguio next month, below. Portion of the news report from PhilStar says that the SC will hear “alleged adverse effects of mining to the environment, health of the community and human dignity.” 

I didn't know that the SC is also into oversight function, I thought it is the job of the Executive branch (DENR, MGB) and Legislative branch that creates or amends existing laws.

The Consti provision, “All lands of public domain, waters, minerals, coal, petroleum and other mineral oils,... are owned by the State.” (Art XII, Sec. 2, PH Constitution)  I think is misunderstood. When a mining company removes top or mid-soil and rocks, say 10 meters below the original level, the land is still there. One can dig 20 kilometers of the planet's crust, deep into the mantle (but they will burn due to intense heat from the planet's core) and the "land area" is still there, owned by the state.

Many anti-mining groups and individuals argue that mineral deposits and products are non-renewable and must be protected by the government from commercial interests. This position is questionable actually.

In a mining forum at DLSU that I attended, a mining engineer from UP, Rodalee Ofiaza, said that geologic processes -- movement of magma (molten rock, still underground), various hot gases from the planet's core to the mantle, onto the crust (the soil where we stand) can turn ordinary soil and rocks into mineral deposits via igneous process or sedimentary process. With the help of volcanoes and earthquakes, which allow the trapped magma and gases at the outer core to move upwards.

The implication here is that since those geologic processes are going on endlessly, and rain water seepage deep into the ground, the heated water turn into gases (some become "hot spring") that contributes to the formation of mineral ores. In short, mineral products are renewable through geologic processes and cycles. Like rain is renewable through hydrologic cycle.

No mining, no modern life. No cell phone, no tv, no computer, no internet, no electricity, no cars, no bicycles, no buildings, no nails and hammer. And yet mining is the most over-taxed sector in the country as if it is a useless activity, as useless as over-politicking.

Below are two news reports yesterday from Business Mirror and Philippine Star. Generally similar content and titles,

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(1) from Business Mirror

SC to hear arguments on constitutionality of mining law

Published on Sunday, 24 March 2013 21:01

Written by Rene Acosta / Reporter

THE constitutionality of Republic Act (RA) 7942, or the Philippine Mining Act of 1995, will be scrutinized by the Supreme Court (SC), which is set to hear oral arguments for and against the law.

The High Court has ordered both the government and petitioners to argue their case on April 16, when it will tackle a temporary restraining order sought by two lawmakers against implementation of the controversial law.

The lawmakers have been joined in their petitions by several residents of Davao Oriental province in southern Mindanao supposedly affected by mining activities of Hallmark Mining Corp. and Austral-Asia Link Mining Corp. They and the residents also named as respondent the Department of Environment and Natural Resources (DENR).

In January this year, the petitioners asked the SC to stop the DENR from acting on any application for Mineral Production Sharing Agreements (MPSA) that cover 17,215.4474 hectares of land in the municipalities of Mati, San Isidro and Governor Generoso in Davao Oriental….

(2) from Philippine Star 

SC tackles constitutionality of Mining Act

By Edu Punay | Updated March 25, 2013 - 12:00am

MANILA, Philippines - The Supreme Court (SC) will take a second look into constitutional issues regarding Republic Act 7942 or the Philippine Mining Act of 1995 as it tackles petitions of lawmakers against the widely criticized law during oral arguments in court’s summer session on April 16 in Baguio City.

In the guidelines released last Friday, the high court listed four common issues in the petitions filed by Quezon 4th district Rep. Lorenzo Tañada III, Bayan Muna party-list Rep. Teddy Casiño and former Akbayan party-list Rep. Risa Hontiveros.

The debate will tackle the legal standing of the petitioners and whether or not the legal questions they raised can be subject to judicial review.

The SC also directed parties to argue on whether or not it could still rule on the case given that it had already decided on a similar case of La Bugal-B’laan Tribal Association vs. Ramos administration in December 2004…

Lastly, the high court wanted the petitioners and respondents to discuss the “alleged adverse effects of mining to the environment, health of the community and human dignity.”

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See also:
Mining 5: Benefits of Mining Even Without Taxes, December 09, 2012
Mining 6: Large Investments vs. Large Bureaucracies, February 19, 2013 
Mining 7: Mining Taxation and Government, March 08, 2013
Mining 8: Rio Tuba Mining in South Palawan, March 17, 2013

Mining 7: Mining Taxation and Government

* This is my 3rd guest post in antipinoy.com.
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The large-scale mining sector  is probably the most taxed sector in the country. National taxes and fees include corporate income tax, tax on stockholders dividends (local and foreign),  excise tax, value added tax (VAT), capital gains tax, documentary stamp tax, tax on bank interest, tax on interest payment for foreign loans, vehicle registration tax, import tax for mining equipment and heavy machineries,  royalties to indigenous communities, mine tailing fees and occupation fees.

Local taxes include community tax, business permit tax, real property tax, registration fees, occupation fees, other taxes and fees.

In addition, big mining companies are also expected to provide various hard and social infrastructures to the residents and workers of the mining area, on top of the various taxes and fees to the national and local governments.

In contrast, the small-scale  mining enterprises are minimally  taxed and regulated.  

On top of these, there were a few recent moves by the government that expands the taxation base of big mining companies. One is the draft scheme by the Mining Industry Coordinating Council (MICC) through the Department of Finance and the Department of Environment and Natural Resources where big mining companies will be taxed twice, first on the gross revenue and second, on the end of year net income.

The other is the Revenue Memorandum Circular (RMC) No. 17-2013 dated February 15, 2013, saying that companies under the Financial or Technical Assistance Agreement (FTAA) must pay taxes throughout the duration of their contract with the government, and not just after the cost recovery period as provided under RA 7942 or the Philippine Mining Act of 1995.

These new revenue measures are created to further tax the sector which many people believe is “not taxed enough” yet and hence, endangers the environment.

Let us review how valid is this statement.

In 2010, the different players in the mining sector paid P13.4 billion in various taxes and fees to the government. There are different interpretations of what this figure represents as share of the government, local and national.

The three tables below collapsed into one image are from Dr. Artemio F. Disini, Chairman of the Chamber of Mines of the Philippines (CMP) in his paper, Getting a Fair Share: The Industry Perspective on Mining Taxation, presented at the Philippine Economic Society (PES) 50^th Annual Conference last  November 27, 2012, held at the PICC, Manila.

I attended that conference and the panel on mining taxation. The other speakers in the panel were Shanaka Peiris, IMF Resident Representative to the Philippines, Tristan Canare of the Asian Institute of Management (AIM), and Donna Gasgonia of the UNDP.

Dr. Disini was saying that the actual contribution of the large scale metallic mining industry to the government coffers was not just 9 percent but 13 percent of gross value production, as the small scale mining (SSM) sub-sector does not pay any taxes, at least to the national government.

After deduction of production cost, 60 percent for metallic and 50 percent for non-metallic, the total taxes, fees and royalties paid to the government of P11.9 billion in 2010 comprised 43 percent of the large scale mining companies’ net revenue.

This government share of nearly P12 billion in 2010 alone and constituting nearly one-half of big mining companies’ net revenue is big. It is hard to find other sectors that are taxed this much.

Thus, the statement that large scale mining is “not taxed enough” is not valid.

For one, humanity benefits from mining because no mining and mineral products means no modern life. From spoon and fork, nails and hammer, cellphones and laptops, cars and airplanes, engines and buildings, all of these came from mining. A mining expert Kennedy “Kori” Coronel aptly put it this way: “Everything that humanity needs that cannot be grown, must be mined.”

So, a “No to mining whatsoever” statement is a non-option. A corollary statement “tax mining as prohibitively as possible” is next to non-option as this will drive the legal, large and responsible mining companies and leave the country’s mineral resources to the guerilla type small-scale mining enterprises that are hardly taxed and regulated.

The appropriate attitude for government and the rest of society is to keep taxation at the minimum and go for full transparency and accountability of all mining companies, from small to medium to large firms. Putting strict regulations and high taxes only to large players but allowing small players that are often owned or protected by local politicians to disobey those regulations do more harm than good, to the environment, economy and society.

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See also:
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
Mining 5: Benefits of Mining Even Without Taxes, December 09, 2012
Mining 6: Large Investments vs. Large Bureaucracies, February 19, 2013