The new mining tax regime will generate revenues of 38 billion pesos
August 25, 2022 | 00:00
MANILA, Philippines — The government is pushing for a new mining tax regime that is expected to provide some 38 billion pesos in additional revenue each year to the state in a bid to help economic recovery from the pandemic.
At a House Ways and Means Committee hearing yesterday, the Department of Finance unveiled its proposal to reform the mining tax regime to achieve simplification, fair distribution, added value and good governance. .
Deputy Finance Secretary Valery Brion said the DOF recognizes that the mining industry has the potential to drive economic recovery and long-term growth.
It is estimated that the DOF proposal will result in a total revenue of 37.52 billion pesos per year for the government.
In particular, the DOF wants to impose a five percent royalty rate for all large-scale mining operations and provide additional revenue of at least 5 billion pesos per year.
This would effectively change the current configuration where only those located inside a mineral reserve are subject to royalty payments.
Such an approach is also supported by the Bureau Mines et Géosciences (MGB). A royalty payment for non-metallic minerals extracted inside or outside mineral reserves is also proposed.
The DOF is also pushing for a single, streamlined tax regime applicable to all large-scale metal mines, regardless of location.
“This addresses the complexity of the current tax regime, which depends on whether the mine is operated within a mineral reserve and whether it is operated under a mineral production sharing agreement (MPSA) or a mining agreement. financial or technical assistance (FTAA),” Brion said.
In terms of value addition, the DOF is proposing a 10% export tax on the gross value of the ore to encourage proper and downstream mineral beneficiation. Currently, there is no duty on the export of unprocessed minerals.
Committee chair Rep. Joey Salceda expressed support for a new mining tax regime, saying the industry has one of the lowest effective tax rates in the world and that the recent lifting of the moratorium on new mining projects would create a greater margin for a higher REE. .
The Philippines has an ETR of 38.2% for gold and 45.3% for copper, significantly lower than the world average of 58.7%.
Salceda argued that the gross value added of the mining sector has declined but the value of exports has increased, indicating that most exports are minerals with no domestic value added.
“Tax rates should be higher than the current regime to offset the impact of lower corporate income tax on overall government tax revenue and to approximate global averages,” Salceda said. .
He argued that the additional revenue should reach at least 20 billion pesos per year, which is less than what the DOF proposes.
The MGB, for its part, noted that the policy objectives of a fiscal regime should allow the government to realize the full value of its resources while attracting the necessary investments and should be adaptable to changing circumstances.
As expected, the Philippine Chamber of Mines (COMP) has expressed apprehension about the new tax regime.
COMP Chairman Gerard Brimo argued that the capital-intensive industry requires foreign investment if it is expected to grow and realize its potential to contribute to the economy.
“The industry has been beset by huge policies such as the moratorium and ban on surface mining. Foreign investors watching us remain concerned about the stability of our policies. They are adopting a wait-and-see attitude,” said Brimo said.
“If we come up with a tax structure that’s not internationally competitive, we won’t be able to attract the investment we need,” he said.
The country’s current mining tax policies include a 25% corporate income tax, a 4% excise tax on gross value and a 5% mining royalty inside mining reservation areas, as well as a 50/50 sharing mode between the government and the mining promoters within the framework of an FTAA.
Currently, the industry contributes only 0.7% to the economy, 1% to government revenue and 4.8% to total exports.
Last year, the gross production value was 224 billion pesos with taxes, fees and royalties amounting to 39 billion pesos.
The total value of the country’s resources is estimated at $7.34 trillion, including gold, copper, nickel, iron, chromite and other non-metallic minerals. However, the total production value is only $38.44 billion or 3%.
The mineral potential of the Philippines is about nine million hectares out of the total area of the country of 30 million hectares. The mining concessions cover just over 700,000 hectares or 2.45%.