(Conclusion)
The summary of the incentives are as follows:
(1) Fiscal incentives under EOs 226 and 528
• ITH for a period of six years for pioneer projects and four years for non-pioneer projects;
• Tax and duty exemption on imported machinery, equipment and accompanying spare parts;
• Exemption from wharfage dues and export tax, duty, impost and fees of non-traditional export products;
• Tax credit for taxes and duties on raw materials of export products; and
• Additional deductions from the taxable income for labor expenses and necessary and major infrastructure expenses.
(2) Non-fiscal incentives under EO 226
• Employment of foreign nationals;
• Simplification of customs procedures for the importation of equipment, spare parts, raw materials and supplies, and exports of processed products;
• Unrestricted use of consigned machinery, equipment, and spare parts which are reasonably needed in the registered operations and are for the exclusive use of the registered enterprise; and
• Access to the utilization of bonded manufacturing/trading warehousing system subject to such guidelines as may be issued by the BOI Board in consultation with the Bureau of Customs.
The commencement date of the ITH is the start of the business operations of the company as declared in the general terms and conditions governing its registration with the BOI.
Other incentives under the Philippine mining act
(1) Incentives for pollution control devices
Pollution control devices acquired, constructed or installed by contractors shall not be considered as improvements on the land or building where they are placed, and shall not be subject to real property and other taxes or assessments. However, the payment of mine wastes and tailings fees are not exempted.
(2) Income tax-carry forward of losses
The net operating loss without the benefit of incentives incurred in any of the first 10 years of operations may be carried over as a deduction from taxable income for the next five years immediately following the year of such loss. The entire amount of the loss shall be carried over to the first of the five taxable years following the loss, and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining four years.
However, the Implementing Rules and Regulations (IRR) of the Philippine Mining Act of 1995 provides that if the contractor opts to avail of the ITH incentive under its BOI registration, then the incentive on the income tax carry forward of losses should not be granted to it and vice versa. It should then be a choice between the ITH or the income tax-carry forward of losses, with the choice of the first availment governing the succeeding availments. There shall be no switching of these two incentives within the entire prescribed period within which the contractor is entitled to such incentives.
(3) Income-tax accelerated depreciation
Fixed assets may be depreciated as follows:
(a) To the extent of not more than twice as fast as the normal rate of depreciation or depreciated at normal rate of depreciation if the expected life is 10 years or less; or
(b) Depreciated over any number of years between five years and the expected life if the latter is more than 10 years. However, the contractor should notify the BIR at the beginning of the depreciation period which depreciation rate will be used.
The same IRR provides that the incentives on income tax-accelerated depreciation may be availed of simultaneously with the ITH incentive provided under the BOI registration.
(4) Deductibility of exploration and development expenditures
In computing for taxable income, unless otherwise provided in the said law, the contractor may, at his option, deduct exploration and development expenditures accumulated at cost as of the date of the prospecting or exploration and development expenditures paid or incurred during the taxable year. However, the total amount deductible for exploration and development expenditures shall not exceed 25 percent per annum of the net income from mining operations. The actual exploration and development expenditures minus the 25-percent net income from mining shall be carried forward to the succeeding years until fully deducted.
Net income from mining operation is defined as gross income from operations less allowable deductions which are necessary or related to mining operations. Allowable deductions shall include mining, milling and marketing expenses, depreciation of properties directly used in the mining operations.
Discovering the riches of the earth through mining begins with exploration. But once the mineral resource is discovered, business concerns set in and so from this corner, we attempt to provide an insight from a tax perspective to those who have ventured into mining.
Finally, what makes mining interesting is that it adheres to the so called biblical method of “Search and you shall find”. It is like the journey of life where we seek to find that which is precious. It will take us farther than the bend, and yet after all that searching, we realized that we need not go so far because what we have attempted to look for has always been with us. Such irony rings true in the poem of T.S. Elliot, The Waste Land where he wrote, “We shall not cease from exploration and the end of all our exploring will be to arrive where we started... and know the place for the first time”.
(Alma L. Barcelo is a director for Tax and Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email manila@kpmg.com.ph or abarcelo@kpmg.com).