Foreign chambers nix additional taxes on mining

MANILA, Philippines — Foreign businessmen in the country are against a plan to impose additional taxes on the mining industry, saying this would be counterproductive to government’s aim of increasing its revenue take from the sector.

The Joint Foreign Chambers (JFC) of the Philippines said in a position paper on the additional taxes to be imposed on the mining industry through House Bills 00288, 00560, 01867, 02557, 04541, 04874 and 05022 that while it recognizes government’s aim to increase its share from revenues of mining operations, the proposals would be costly to the mining industry and in the long run decrease rather than increase government’s revenues.

Through the mining bills, government is looking to establish various fiscal regimes for the mining industry by imposing several sliding scale royalty rates on both metallic and non-metallic mining operations.

In some cases, the proposal involves sliding scale government share based on margins with most adding additional shares on windfall profits.

The Tax Reform for Acceleration and Inclusion Law or the first package of the government’s tax reform program which took effect last year, already increased the excise tax rate on all minerals by 100 percent.

In addition, the Philippine Mining Act requires mining companies to set aside a minimum of 1.5 percent of their operating costs to fund and implement social development and management programs, and one percent royalty on gross sales for indigenous cultural communities.

As such, JFC is of the view additional taxes would be an added burden and in the long-term, could discourage mining investments and lead mining firms to go to other countries with more attractive regimes.

Without the recent doubling of the excise tax, JFC said the country’s existing mining taxes were already uncompetitive internationally, based on the International Monetary Fund’s 2012 report to the Philippine government.

Citing the calculations of the Chamber of Mines of the Philippines, JFC said the recent doubling of excise tax has made the average effective tax rate or AETR reach over 73 percent, higher than tax regimes of major mineral producing countries such as Canada and Australia.

“JFC believes that extending the royalty rates of existing mines outside the mineral reservations by any margin would make the fiscal regime unattractive for new mining investments and may cause the shutdown of existing mines with low profitability,” it said.

As some of the bills treat metallic and non-metallic mining equally or without distinction, JFC said it is important to note the differences.

It said applying uniform taxation may adversely affect other related industries. For instance, additional taxes on non-metallic minerals could have an impact on the cement industry which has a role in the government’s flagship Build Build Build program for infrastructure development.

‘While we appreciate the need for the administration to fund the many bold and innovative programs outlined in the 10-point socioeconomic agenda, we also believe that additional taxes over and above the current levels would not accomplish the goals of raising government’s share of mining revenues but rather reduce them. In our view, the result would likely be; curtailment of mine expansions, closing of low profit mines and limited or no new mining investments due to regional competition. The result would lead to falling employment and income in remote rural areas where it is needed the most,” JFC said.JFC said the concept of a mineral wealth fund is worth exploring in conjunction with a windfall tax regime, but the definition of a windfall would have to be carefully thought of and there should be agreement by all stakeholders.

As the House Bills contain a “vested rights” clause that excludes those agreements that have no amending clauses relating to terms and conditions but include those that do, the JFC said also said all existing mineral agreements in good standing should be excluded as well,  to avoid premature reduction in operations or outright closure of operations.

The JFC groups the American, Australian-New Zealand, Canadian, European, Japanese, Korean chambers and Philippine Association of Multinational Companies Regional Headquarters Inc.

This coalition represents over 3,000 member companies engaged in over $100 billion worth of trade and $30 billion worth of investments in the country.