New mining fiscal regime to yield P38 billion revenues

MANILA, Philippines — The government is pushing for a new mining fiscal regime that is expected to provide some P38 billion in additional revenues yearly for the state in a bid to contribute to economic recovery from the pandemic.

In a House of Representatives ways and means committee hearing yesterday, the Department of Finance bared its proposal to reform the mining fiscal regime to achieve simplification, fair share, value-adding and good governance.

Finance Assistant Secretary Valery Brion said the DOF recognizes that the mining industry has the potential to boost economic recovery and long-term growth.

The DOF’s proposal is estimated to result in total revenue of P37.52 billion per year for the government.

In particular, the DOF wants to impose a royalty rate of five percent for all large-scale mining operations and provide incremental revenues of at least P5 billion yearly.

This would effectively change the current set-up where only those located inside a mineral reservation are subject to royalty payment.

Such a move is also supported by the Mines and Geosciences Bureau (MGB). A royalty payment for non-metallic minerals extracted within or outside mineral reservations is also being proposed.

The DOF is also pushing for a rationalized and single fiscal regime applicable to all large-scale metallic mines, regardless of location.

“This addresses the complexity of the current fiscal regime, which depends on whether the mine is operating in a mineral reservation and whether it is operated under a Mineral Production Sharing Agreement (MPSA) or a Financial or Technical Assistance Agreement (FTAA),” Brion said.

In terms of value-adding, the DOF is proposing a 10 percent export tax on the gross value of mineral ore to encourage downstream and proper valuation of minerals. Currently, there is no duty on unprocessed export of minerals.

Committee chair Rep. Joey Salceda has expressed support for a new mining fiscal regime, saying that the industry has one of the lowest effective tax rates in the world and that the recent lifting of moratorium on new mining projects would create a bigger room for higher ETR.

The Philippines has an ETR of 38.2 percent for gold and 45.3 percent for copper, significantly below the global average of 58.7 percent.

Salceda argued that mining gross value-added has been declining but exports value have been increasing, indicating that most exports are ores without 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 take and to approach global averages,” Salceda said.

He maintained that incremental revenues should reach at least P20 billion per year, lower than what the DOF is proposing.

The MGB, for its part, noted that policy objectives of a tax regime should enable the government to realize the full value of its resources consistent with attracting necessary investment and should be adaptable to changing circumstances.

As expected, the Chamber of Mines of the Philippines (COMP) has expressed apprehension over the new tax regime.

COMP chairman Gerard Brimo maintained that the highly capital-intensive industry requires foreign investments if it is expected to grow and achieve its potential to contribute to the economy.

“The industry has been beset by huge policies such as the moratorium and the open pit ban. Foreign investors that are looking at us remain apprehensive about the stability of our policies. They are taking a wait-and-see attitude,” Brimo said.

“If we come up with a tax structure that is not competitive internationally, we will not be able to attract investments that we need,” he said.

Current mining tax policies in the country include a 25 percent corporate tax, four percent excise tax of gross value, and five percent mineral royalty inside mineral reservation areas, as well as 50:50 mode of sharing between government and mining proponents under an FTAA.

Right now, the industry is contributing a measly 0.7 percent to the economy, one percent to state revenues and 4.8 percent to total exports.

Last year, gross production value was at P224 billion with taxes, fees and royalties amounting to P39 billion.

Total value of resources in the country is estimated at $7.34 trillion including gold, copper, nickel, iron, chromite and other non-metallic minerals. However, total production value is only at $38.44 billion or three percent.

The mineral potential in the Philippines is roughly nine million hectares of the country’s total land area of 30 million hectares. Mining tenements are just at over 700,000 hectares or 2.45 percent.