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.

------------

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

BWorld 192, Cobalt mining and TRAIN

* This is my article in BusinessWorld last March 01, 2018.

Many people are enamored — and rightly so — with consumer electronics and gadgets like smartphones, iPads, laptops, and so on. Then, there is new and huge global demand for electric cars and bikes, even electric buses and trucks.

All these products and equipment need batteries, which, in turn, require large volumes of cobalt, considered by some analysts as the “new oil.”

This is good news for the Philippines.

First, cobalt prices seem to be skyrocketing. Second, the Philippines has the 4th largest cobalt reserves (#1 is Congo) and the projected reserves/production (R/P) ratio is 70, meaning at 2017 estimated production level, it will take 70 years for our cobalt reserves to be depleted.

Another good news for the Philippines is in nickel. First, world prices are also rising high though not as fast as cobalt prices. Second, we have the 5th largest nickel reserves (#1 is Australia) although our R/P ratio for nickel is only 21 years (see table).

Why have cobalt prices risen too fast recently?

According to Darton Commodities projections as cited in a Bloomberg report, cobalt use in electric vehicles and other lithium-ion battery applications was around 55,000 tons in 2017 and this is projected to rise to around 160,000 tons in 2025 and 330,000 tons in 2030.

Mining exploration and drilling technology keeps improving so new reserves for cobalt, nickel, gold, copper, and other metals that the Philippines has will be discovered soon and this will raise the R/P ratio for these commodities.

During the BusinessWorld Stockmarket Roundtable last Feb. 20, at Shangri-La Hotel, about two or three of the four speakers that afternoon (Gus Cosio of First Metro, April Tan of COL Financial, Jun Calaycay of Philstocks Financial, and Mike Gerard Enriquez of Sunlife Financial) mentioned the short- and medium-term potentials of the Philippines mining sector. These finance guys see the trend in global commodity supply and demand and hence, their global prices.

BMI Research also showed optimistic outlook for the sector: metallic mining output 6% growth to $3.98 billion in 2018, 5% growth to $4.18 billion in 2019, $4.34 billion in 2020, $4.47 billion in 2021 and $4.56 billion in 2022.

As of end-2016, estimated Philippines reserves are: 1.854 billion MT of gold, 1.696 billion MT of silver, 1.761 billion MT of copper, 116.136 million MT of nickel, 116.001 million MT of iron and 47.264 million MT of chromite.

Various uncertainties in the sector should be relaxed if not ended soon. The good potentials are there in terms of corporate income, jobs generation, mandatory community development projects, and government (national and local) tax and nontax revenues.

These uncertainties range from (a) resource nationalism (“keep out foreign capital in mining” or “export only processed minerals, not raw ores”), (b) more regulations (“ban open pit mining,” “suspend or close more metallic mining”), and of course, (c) more mining taxes (“raise the mining excise tax from 2% to 4%, 6%…,” “raise mining royalties…”).

The recent Tax law RA 10963 known as Tax Reform for Acceleration and Inclusion (TRAIN) has, out of nowhere, raised the mining excise tax from 2% to 4%. It seems that this was not contained in the original House and Senate versions prior to the Bicameral Committee meetings but were just inserted along the way, along with the coal tax hike and tobacco tax hikes.

Now TRAIN 2 is in Congress and there are moves to further raise the mining excise tax on a per-commodity basis, but without reducing or removing other taxes, royalties and mandatory community expenditures.

There should be a limit to the politics of envy via high and rising taxation. When companies create lots of direct and indirect jobs, give lots of social and economic services to their personnel and community residents who are not even company employees, pay lots of taxes, regulatory fees and royalties to the government, the itch of tax-tax-tax should be tempered.

---------------

See also:

BWorld 185, Lower taxes via more mineral exports, February 06, 2018 

BWorld 189, Distortions in TRAIN 1 should be corrected by TRAIN 2, March 14, 2018 

BWorld 190, TRAIN, inflation and the stock market, March 15, 2018 

BWorld 191, Solar insecurity, energy stability and affordability, March 15, 2018

BWorld 185, Lower taxes via more mineral exports

* This is my article in BusinessWorld last February 6, 2018.

Countries that impose zero income taxes on their nationals are dependent on extracting and exporting their natural resources such as oil and natural gas. Qatar, Bahrain, Brunei, Kuwait, Oman, Saudi Arabia, and United Arab Emirates are examples of such countries.

Instead of minimizing the extraction of these fossil fuels (and keeping them in the ground, as advocated by environmentalist groups), these countries extract these resources big time, export them to the rest of the world, and sustain their governments’ economic and social programs without creating or imposing any income tax.

This is a lesson for the Philippines with an estimated $1 trillion worth of mineral reserves.

On the graph are data from the US Geological Survey (USGS)which indicates that worldwide, the Philippines has the 5th largest estimated reserves in nickel and 4th largest reserves in cobalt. Cobalt is largely used to produce batteries for electric vehicles.

The reserves/production (R/P) ratio is computed here, the ratio represents estimated number of years before the reserves are depleted on the assumption that both R and P numbers will not change, which is unlikely because modern and evolving technology through time will continue to discover bigger reserves, or improve the utilization of existing reserves (see table).

  

The Philippines’ R/P ratio of 21 years for nickel is short compared to global average of 35 years but longer than Indonesia’s 11 years. There is a need to continue exploration of other nickel deposits in the Philippines as well as optimize the recovery of this and other metals per ton of metal ores extracted.

Our R/P ratio of 70 years for cobalt is good, higher than the global average of 64.5 years.

As more countries demand more electric vehicles (cars, motorcycles, buses, trucks), the global appetite for cobalt will rise quickly. China is currently the biggest importer and consumer of cobalt as it aims to produce more electric vehicles in the medium to long term.

The rising demand for cobalt relative to supply is shown in its rising prices, currently at $36/pound, the highest since some 15 years ago except for 2008-2009 global financial turmoil where cobalt prices peaked at around $53/pound.

Nickel prices have declined to around $4/ton in 2015-2016, now recovering upwards at current prices of around $6+/pound.

So there are big potential for more investments, more jobs, more government tax revenues, from nickel and cobalt alone.

Then there are big potentials for copper and gold mining in this country — if the Tampakan and Silangan projects would push through. Tampakan, estimated to cost $5.9B in project development, will be the single biggest foreign direct investment in the Philippines. For its part, Silangan is worth about $2 billion.

In 2015, the Philippines produced an estimated 83.8 tons of copper metal content, and 20.6 tons of gold metal content. These are small amounts compared to the big global producers of copper: Chile 5,764 tons, China 1,710 tons, Peru 1,700 tons, US 1,380 tons.

Also in that year, the big gold producers were China with 450 tons, Australia with 278 tons, Russia with 252 tons, and the US with 214 tons.

The uncertainties in the mining sector continue to linger even after the Commission on Appointments has rejected former DENR secretary Gina Lopez in May 2017. The new Secretary Roy Cimatu has not yet formally lifted the closure orders for some mining firms and the debate on open pit mining still continues.

The big mining potentials of the Philippines on four metals alone — nickel, cobalt, copper and gold — when realized by removing the endless uncertainties and by relaxing the various anti-mining policies, will allow the country to significantly reduce income tax rates.

Government should have no “right” to confiscate plenty of resources from the pockets and savings of people and private enterprises, especially where there are plenty of private provisions of infrastructure via integrated PPP, private education, private health care, private housing, private security and peace and order.

Bigger mining revenues and mining taxes through lesser anti-mining policy uncertainties will be a key measure toward lowering income taxes, both personal and corporate, in the medium to long term.

--------------

See also:
BWorld 182, Asia Liberty Forum 2018 in Jakarta, January 31, 2018 

BWorld 183, Why low or zero income tax can mean more development, February 09, 2018

BWorld 184, ERC paralysis and implications for consumers, February 11, 2018

BWorld 172, Mining and natural disasters

* This is my article in BusinessWorld on December 15, 2017.

Environmental activists claim that the planet is going into a deepening death spiral with more and more people either killed or displaced by natural disasters that occur around the world.

The method and counting of deaths and displacement, however, is deceptive.

Whether flood or drought, torrential rain or foul weather, these are all counted as “proof” of the “deteriorating situation of the global environment.”

A more objective assessment of the effects of natural disasters is to get data of global temperatures, especially the lower tropospheric temperature (LTT) and sea surface temperature (SST) that are collected by satellites 24/7, and not just the land surface temperature that are collected by various meteorological agencies of many countries.

Another approach is to get the ratio of casualties over X number of people. I found one piece of data that precisely answers the question, “Are there more deaths and displacement in the world today compared to 40, 50, or 100 years ago?”

Based on the chart above, the answer to the question is no.

Assuming that the frequency of strong storms or of an El Niño is rising now compared to hundreds or thousands of years ago, the number of casualties have declined because (1) people now live and work inside stronger structures, and (2) better preparations have been made, thanks to modern forecasting models and communications technology.

Mining in particular is often blamed for big landslides and soil or mountain erosions.

While it is true that some irresponsible mining companies are to blame and must be held accountable — the same way that there are irresponsible construction companies and irresponsible logging and fishing companies — it is also true that landslides occur simply because of the volume of rainfall and flashfloods that come, not because of any mining and quarrying in a particular area.

To further control irresponsible mining, non-environmental regulations have been tightened further to squeeze mining companies to become “responsible” to the communities.

The more complicated ones are mining taxes, royalties, regulatory fees, and mandatory community projects on top of taxes, royalties and fees.

And the Duterte government’s tax reform program has raised the mining excise tax from 2% to 4% of revenues. This excise tax is on top of corporate income tax, VAT, withholding tax, documentary stamp tax, etc.

Perhaps a better option that should have been done was to raise the mining excise tax from 2% to 10%, then abolish some mandatory expenditures and programs, like any or some of these: Annual Environmental Protection & Enhancement Program (EPEP), Social Development and Management Program (SDMP), Community Development program, Environmental Work program (EWP), Safety and health program, and others.

The advantage of this option is that government will collect more money since many people always argue that mining firms don’t pay enough taxes. Then government through the national and local government agencies should do those community projects that mining firms are currently forced and coerced to spend on top of various taxes and fees they pay.

So to prepare the locals from natural disasters like annual flash floods, government should build huge and stable drainage, ensure robust riprap structures on hills and cliffs to control erosion and landslides.

It remains a question of course if government officials and legislators will really do this once they hold the money. After all, giving away freebies and endless subsidies is often seen as more “politically productive” than building long-term infrastructures to communities.

 ---------------

See also:

BWorld 168, Uncertainty in mining policy and the Manicani debate, December 12, 2017 

BWorld 169, On tobacco tax and plain packaging, December 12, 2017 

BWorld 170, The Habito carbon tax distortion, December 28, 2017 

BWorld 171, Global vs national tax reforms, December 29, 2017

Mining 55, Kaleidoscope forum by UP MINERS

Last Thursday evening, September 28, the student organization UP MINERS held a forum on "Kaleidoscope: Various Perspectives on Mining" held at the UP College of Engineering Theater. Just panel discussions, no powerpoints. There were six of us panelists -- two from the DENR Mines and Geosciences Bureau (MGB), Atty. Josephine Sescon and another officer; Atty. Ronnie Recidoro of the Chamber of Mines (COMP), Engr. Duday de Sales of Woodfield Consultants, Jaybee Garganera of Alyansa Tigil Mina (ATM) and me.

Mining is beautiful in the sense that it can create a lot of jobs, lots of community projects for many decades in a relatively small area via deep open pit mines. Instead of quarrying and digging over a wide area of tens or hundreds of thousands of hectares, one open pit will need only several hundred hectares and machines and trucks can dig there for many decades. Similar to a high rise condo, instead of needing dozens of hectares to house 500 households, one will need only half hectare to build housing for 500 households in 1 or 2 condo towers.

I like the Australian case. Mining occupies only 0.02% of total land area but the sector contributes 9% of GDP. Compare with the PH exporting millions of OFWs who contribute 10% of GDP annually. No "small scale" mining in Australia, the sector is heavily mechanized, monster machines and engines at work, giving jobs to tens or hundreds of thousands of people.

Among the points I discussed were the following:

1. Mining share of 0.65% of GDP is indeed small if compared with nationwide average, what Dr. Caloy Arcilla says as "the tyranny of national averaging". But if compared with a provincial or regional GDP, mining share for certain provinces like Surigao can be as high as 25%.

People who argue that "it's only 0.65% of GDP, we can close mining totally" should also consider a similar argument that "poultry, piggery is perhaps only 1% of GDP, very small they can be closed totally."

2. Raising the excise mining tax from 2% to 10%, sure but there should be corresponding reduction if not abolition of other taxes, royalties, fees and charges.

3. Do mining communities and municipalities benefit from the industry or they are only taken for a ride? No in many areas like what I saw in Rio Tuba and Bataraza, Palawan. Yes in some municipalities perhaps. In a presentation by Dr. Cuano during Mining PH 2017 conference at Sofitel last Sept. 8 or 9, he showed that a small town Claver in Surigao has a per capita resources (IRA from national govt, mining share, etc.) of about P13,000+. Quezon City has a per capita resources of only P5,700+, 2015 figures. Or a mining town has per capita income more than 2x than a rich, big, LGU in Metro Manila.

4. The Tampakan gold-copper project in Mindanao, the single biggest FDI in the PH at $6 B. Granted permit, cancelled, repermitted, cancelled. Government has created great investment uncertainty in this project alone. That is not how governments should manage an economy.

5. Mineral-rich lands are almost useless for agriculture, useless for forestry, useless for animal farming, even for settlements of indigenous people (IPs). Why -- I explained my experience in agro-forest farming in the farm in Pangasinan. Land that is silica- and other mineral rich, we planted mahogany, acacia auri, eucalyptus, etc. After 10 years, they either die or are very thin, very short, stunted growth. Even cogons don't grow well. Just 100 meters away, the soil is soft, same trees planted a decade ago, they are tall and big.

Good summary by Ralph Abainza later. Above photo with UP Miners officers, panelists, moderator. Thanks for the opportunity to share insights with you guys.

Photo credits: colored ones from Ralph, the black and white from UP Miners.
-------------

See also: 

Mining 52, Regulations and bureaucracies, the mining communities, June 07, 2017

Mining 53, Cobalt mining for electric cars, August 10, 2017 

Mining 54, Ralph Abainza on water table and Gina Lopez, September 30, 2017

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.

---------------

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

BWorld 140, Mineral rent and taxation

* This is my paper in BusinessWorld last Wednesday.

The Philippines’ mining potential is inversely proportional to government mining policies.

Until about two years ago, the debate was on how much tax hike would be imposed on mining. Then early this year, the debate shifted to outright suspension and cancellation of operations by many mining companies. After the Commission on Appointments rejection of Ms. Gina Lopez as DENR secretary last May 3, the uncertainties have greatly subsided and certain sectors are reviving the old debate -- how much tax increases to impose on big mining companies.

Many of the anti-mining sentiments and groups will be jumping on this issue. Very high taxes on metallic mining companies will produce three results that are all favorable to them: (a) some operating companies will be forced to close down especially when global metallic prices are low; (b) planned projects or expansion of existing mines will be discontinued; and (c) companies that continue to operate will be forced to somehow underdeclare output and these groups will further demonize them and lobby for their closure.

In some developed countries like the US, Canada, and Australia, it seems that even big environmentalist groups do not lobby for mining closure but their counterparts in the Philippines are so adamant in this philosophical nirvana.

Consider some data for member-countries of the Asia-Pacific Economic Cooperation (APEC) below. Two technical terms are used:

1. Mineral rent: the difference between the value of production for a stock of minerals at world prices and their total costs of production. This rent is not the same as value added to GDP. Rent is pure profit (price minus marginal cost multiplied by quantity) while value-added is the sum of earnings from production that are due to residents. Thus, salaries of mine workers are included in GDP value-added but not in rent.

2. Mining Contribution Index (MCI) is calculated based on aspects of mining contribution to national economies, composite for three variables: (a) Mineral export contribution in 2010 as percent of total merchandise exports, (b) Increase/decrease in mineral export contribution 2005 to 2010, and; (c) Mineral production value as a percentage of GDP in 2010.

The numbers show the following:

1. China being a powerhouse producer of copper, silver, zinc, lead, and gold is the world’s biggest mining country despite having a low MCI. Australia comes second and its output is almost twelve times than that of the Philippines.

2. Countries on the “ring side” of the Pacific Rim generally have higher MCI -- Australia, Chile, Papua New Guinea, Peru -- than those a bit far from the Rim.

3. The Philippines is estimated to have $1 trillion-mining potential yet its actual output in a year is low, only $7 billion in 2013, much of it from nickel production as the country is the world’s second biggest producer of nickel, next only to Indonesia.

So a rich and developed Australia allows and optimizes mining while a poor Philippines with big potential for mining discourages it, at least in the minds of many environmentalists and some accidental DENR officials.

Responsible mining is happening here and abroad. So long as local mining companies follow the law in environmental protection and rehabilitation, and doing plenty of community projects as specified by law, they should not be demonized and over-taxed and/or over-bureaucratized.

The Philippine government can improve the mining attractiveness of the country via two important taxation policies:

One, do not further increase taxes as existing taxes, fees, royalties, bonds, fines, mandatory contributions, mandatory community projects, and environmental rehabilitation are already high and plentiful.

Two, the government should also ensure stable tax rates, or reduce demand for ad hoc taxes on excess or windfall profits as there are also no ad hoc tax breaks or subsidies for excess losses when world metal prices are low. Tax stability is more useful for private players than giving them certain fiscal privileges because these policies may later be challenged and reversed.

Having rule of law in mining audit, environmental rehabilitation, and tax stability is the single most important function of any government in economies with proven high mining potential. The Philippine government should take this path.

---------------

See also:
BWorld 137, ASEAN trade expansion and RCEP, June 20, 2017 
BWorld 138, PPP vs ODA, Part 2, June 21, 2017 
BWorld 139, State central planning vs household decentralized planning, June 22, 2017

Mining 45, Presentation at UP Diliman

Last September 22,2015 evening, I was one of two speakers in a symposium, "OPEN MINEded ka ba?" organized by the University of the Philippines (UP) Mining Engineering Society (UP Miners) and co-sponsored by about 10 other student organizations in UP. Venue was the College of Science Auditorium, UP Diliman, Quezon City.

The other speaker was Engr. Gabriel "Gab" Pamintuan Jr., an alumni and part-time faculty member of Mining Engineering in UP, with an MS in Petroleum Engineering in a US university, and currently pursuing a PhD in nuclear engineering.

Including those who come and go, there could be 100+ students who attended the forum. One young faculty member from the National Institute of Geological Sciences (UP NIGS) brought her entire class to the forum. She later asked for my presentation and that of Gab, to be among her resource materials in her presentation at a forum abroad this month.

Among the slides I showed, below. If the direct and indirect payments are summed up, the local communities really benefit from sustainable, long-term, scientific and corporate large-scale mining. Workers and their kids who have free or subsidized housing, free private hospitalization, private school, roads and street lighting, etc. Then the non-employees who have shops, carinderias, vendors who cater to the needs of officers and employees. Not to mention the various taxes, fees, royalties, paid to local and national government units.  My 23-slides presentation is posted in slideshare here.

Still, many people hate mining, especially corporate mining without understanding,  or refusing to understand that a lot of bad and negative images of mining destruction come from "small scale", short-term, guerilla type of mining. Gab Pamintuan's presentation with lots of photos was truly an  eye-opener.

With members of UP Miners. Thanks again, Neil Clark, for the invite. This is the 2nd time that I spoke at UP Miners' forum, the 1st time was last year, held at the UPSE auditorium.

There were also participants from Adamson University, geology students, below. They traveled from Manila to UP in Quezon City to hear the discussion.

Thanks again for the opportunity to discuss the ugly realities of government's heavy taxation, regulations and bureaucratism of this otherwise very useful industry. If people do not believe that mining is useful, try NOT using any products of mining -- tv and ref, cars and buses, spoon and fork, electricity and electronic gadgets like cell phones and computers,...
-----------

See also:

Mining 41: Presentation at the UP MINERS Forum, September 21, 2014

Mining 42: Presentation and Debate at UP PALS-NCPAG, November 14, 2014

Mining 43: Mandy Armas, Christian Monsod at the PES Conference, December 01, 2014 

Mining 44, Presentation at the Mining 2015 Conference, September 17, 2015 

BWorld 19, Taxation and regulations in PH mining industry, September 24, 2015

BWorld 19, Taxation and regulations in PH mining industry

* This is my article in BusinessWorld last September 22, 2015.

ALMOST ALL the modern things that we enjoy now, from mobile phones to computers, TVs, refrigerators, cars, buses, trucks, tractors, planes, buildings, airports, etc., come from mining. It is not possible to have modern life, to live more productively, wealthier and healthier, without using the products of mining.

Many people take this for granted. That is why many people hate mining, especially big corporate mining and wish that there will be “No Mining” policy in the whole country soon.

The contribution of mining in the Philippine economy looks small. Just 1% of gross domestic product (GDP) and only 0.6% of total employment. And so the temptation to “Close all mining” calls continue.

But read the first paragraph again. People only see the stones, rocks, and soil being removed from a particular province, the mud and tailings that flow during heavy rains while ignoring the fact their gadgets, appliances, vehicles, buildings, electrical cables, and wires come from those rocks and soil extracted somewhere else.

Between “No to Mining” and “Allow Mining” is the philosophy of “Over-tax, over-regulate Mining”, and this is what we have now.

First, the Philippines has the highest value added tax (VAT) or gross sales tax rate in the Association of Southeast Asian Nations. And second highest in corporate income tax (CIT) at 32%, next to Myanmar’s 35%; it is almost twice the CIT in Singapore of only 17%.

Second, the number of taxes, royalties, regulatory fees, contributions and mandatory community expenditures that a mining company must pay is rising through time.

Thus, after paying those taxes and fees to government, supposedly to finance public education, public health, public housing, public roads, various livelihood trainings and seminars, a mining firm must spend extra to build its own school and training center, own hospital and clinic, own housing, own roads, drainage and street lighting, conduct livelihood trainings, and so on via social development and management program (hundreds of millions a year), environmental protection and management program, environmental work program, etc.

It is obvious that the over-taxation and over-regulation of mining is driven by envy and political opportunism. Mining and extractive companies are next to evil so governments and the communities that host them should extract as much social and economic rent from them.

There are proposed revisions to current mining tax and the most dominant proposal coming from the Mining Industry Coordinating Council (MICC) is proposing an even higher taxation and government share.

House Bill 5367, the MICC version, proposes that government as “owner” of the minerals should get 10% of a miner’s gross revenues for the year, or 55% of “adjusted net mining revenues (ANMR)” (ANMR: gross revenue less production and other deductible costs but not to exceed 10% of direct mining, milling and processing costs), whichever is higher; and 60% of any windfall profit (in case the “ANMR margin” -- ANMR divided by gross revenue -- exceeds 50%, the government gets 55% of that threshold of 50% of gross revenue plus 60% of the excess).

The consolation is that those high taxes will replace the CIT, royalty to indigenous communities, duties on imported specialized capital mining equipment, mayor’s business permits and other fees and charges imposed by host local government units (LGUs).

The non-consolation is that other existing taxes and fees will still be paid,like the VAT, capital gains tax, stock transaction tax, documentary stamp tax, withholding taxes, environmental fee, real property tax, Securities and Exchange Commission fee and soon.

It is not good to create public policies, in taxation and mandatory fees and contributions in particular, based on envy. People benefit from mining, directly or indirectly, even if taxes are just 10% or zero. It is the fear of “environmental destruction” that is paramount in the hearts of many people. So long as the company institutes measures and spend huge money to control or minimize such danger, the politics of envy should be curtailed.

Imposing very high taxes and complicated requirements will drive away the legal, large, responsible mining companies that want to remain honest. Or it will force them to become corrupt just to stay in business. “Small-scale” and illegal mining that are hardly taxed and regulated will flourish.

Tax hike proposals should be compensated with streamlining and abolition of other taxes, charges, and over-bearing requirements.

Bienvenido S. Oplas, Jr. is the head of Minimal Government Thinkers, Inc. and a Fellow of the South East Asia Network for Development (SEANET).

------------- 

See also: 

BWorld 15, The PH electricity market, August 15, 2015 

BWorld 16, Growth, capitalism and inequality, August 22, 2015 

BWorld 17, More on the Philippine electricity market, August 30, 2015 

BWorld 18, Non-tariff barriers in the ASEAN, September 12, 2015 

Mining 44, Presentation at the Mining 2015 Conference, September 17, 2015

Mining 44, Presentation at the Mining 2015 Conference

Last Tuesday, September 15, I was one of the speakers during the opening day of the 3-days Mining Philippines 2015 Conference, held at the Grand Ballroom of Solaire Resort Casino Manila. Good audience, perhaps about 200 people.

Opening speeches in the morning, then two focused group discussions in the afternoon. We were on the 3-5pm slot.

This is my presentation, 28 slides total, showing 7 of them here.

After showing various tables on comparative taxation in the region, I asked the audience of this question. About 4 hands were raised to say True, none raised hand to say False, the majority just waited for me to answer my own question.

The 3 pitfalls are (a) deadweight loss, (b) declining revenue in a Laffer curve, and (c) non-recognition of the  "multiplier effect" of mining as raw materials.

I discussed the  various bureaucracies in the power/energy sector, and  the  mining sector, the multiple taxes, royalties, fees, mandatory spending such as SDMP, and yet...

Reflecting  on those tables shown earlier...

I showed 4 annexes -- mining taxation in Vietnam, Indonesia, China, and this proposal.

My full presentation is available in slideshare and in dropbox.

The UP Miners, an organization of Mining Eng'g undergrad students in UP Diliman, made this photo and posted it in fb. Thanks Niel and all.

Meanwhile, I like these comments from two friends, Yani and Raul.

Bayani Camitan: noy, we have very much potential in this industry. in fact mining industry was a significant (if not today in the future) contributor to GDP. but then again, it is sad to say that government support is lacking and related policy is unclear. for one, we have as u may know Surigao (which is partly known for surfing) is the so-called "nickle-ore capital of the Philippines". it is one of the main supplier exporter of nickle ore competing against Indonesia for China market. unfortunately the mining players in Surigao do NOT have a centralized laboratory for nickle ore testing; each of them has their own way to cheat if not hide the characteristics of this mineral ore. an act of one will spoil the whole of it. if only government could support and have a government-instituted laboratory which should be a common facility for about 14 mining companies in Surigao alone, with this guess we can be recognized in the world for this mineral ore.

Raul De Leon: That's the problem with government thinkers! Everytime they see an industry grow, the first thing they think of is to increase taxes instead of improving the collection system. Just like they did in the mid 90s when they saw the stock market boom. They imposed higher taxes on trades that lead to investors shying away from our market and invest else where. This wrong mindset of increasing taxes out of a booming industry has Instead yielded negative results to all stakeholders especially the government who has lost a lot of opportunities and losing to our asian neighbors by giving less incentive, more government involvement and lesser investor facilities.

----------

See also:

Mining 40: MICC and its Proposed 79 Percent Effective Tax Rate, July 21, 2014

Mining 41: Presentation at the UP MINERS Forum, September 21, 2014

Mining 42: Presentation and Debate at UP PALS-NCPAG, November 14, 2014

Mining 43: Mandy Armas, Christian Monsod at the PES Conference, December 01, 2014

Mining 42: Presentation and Debate at UP PALS-NCPAG

Last month, I participated in an open debate on mining held at UP Diliman. Three of us pro-mining including Dr. Arcilla  (4th from left in this photo) of the UP National Institute for Geological Studies (NIGS), and three anti-mining including Mr. Garganera (3rd from right), National Coordinator of the Alyansa Tigil Mina (ATM, Alliance to Stop Mining).

The theme of the debate was "Mining: Boon or Bane?". Nice forum and debate.

Below are some of the major arguments of the anti-mining groups.

Good audience, should be 200+ students and teachers/professors, including some UP Mining Engineering students, and guests from other universities invited by the sponsor, UP PALS.

The anti-mining groups would clarify that "we are not anti-mining per se, we recognize the contribution of mining to society but certain conditions should be met like..." and such list can be long and/or very stringent.