Congress urged to pass measure imposing margin-based taxes, royalties for mining firms
MANILA, Philippines — President Ferdinand Marcos Jr. urged Congress on Wednesday, October 16, to pass the proposed legislation rationalizing the taxation and revenue collection from mining operations in the country.
Marcos said the Rationalization and Mining Fiscal Regime will create a “fair and equitable mining environment.”
The president also mentioned the country’s need to produce sufficient minerals to develop technology that will support the national transition to renewable energy.
“As we look ahead, I urge all our dedicated agencies and esteemed members of Congress to support the Rationalization of the Mining Fiscal Regime,” he said.
At a press briefing on Wednesday, Environment Secretary Maria Antonia Yulo-Loyzaga said the collected revenue from mining companies is used to fund social development and management programs as a way to give back.
Asked about its contribution to the country’s gross domestic product growth, Loyzaga said the mining sector accounts for 0.5% as of 2023.
At the House of Representatives, the proposed legislation is House Bill 8937, which seeks to amend the National Internal Revenue Code of 1997. The lower chamber passed the bill in September 2023.
Problems with the measure. However, environmental advocates and think tanks are opposing this measure as the proposed tax on mining operations is too low in comparison to the damage it leaves to communities and biodiversity.
"While it may be seen as a positive move towards increasing government revenues from the mining sector, there is really no price tag on the immeasurable and inter-generational ecosystem, socio-economic, and cultural impacts of mining operations, especially on affected communities," Environmental Defenders Congress spokesperson Eco Dangla told Philstar.com in a message.
In a webinar on October 7, the Center for Energy, Ecology, and Development (CEED) revealed the Philippines does not need to increase mining activities to meet the demands of the renewable energy transition, as current data shows that the annual production of transition metals is already sufficient.
RELATED: No mining expansion needed for Philippines' energy shift – think tank
But what does this mean for mining companies if the Marcos administration’s Rationalization of the Mining Fiscal Regime is passed?
Margin-based royalties
The House version of the mining fiscal regime is looking to impose royalties on income generated by mining companies.
For large-scale metallic mining operations conducted outside mineral reservations, the royalties will be based on how much income a firm earns.
Should the income be between 1% and 10% of the gross output, the government will collect a 1% royalty. For margins above 10%, mining companies will be charged royalties ranging from a minimum of 1.5% to a maximum of 5%.
This means that mining companies with higher profitability will have a higher royalty rate, but only up to 5%.
Meanwhile, a 4% royalty rate will be imposed on the market value of unprocessed minerals extracted from large-scale metallic mining operations within mineral reservations.
The fiscal system is different for small-scale metallic mining operations, where companies will only be required to pay royalties equivalent to one-tenth of 1% of the gross output or market value of minerals produced.
In other words, it is 0.001% of the market value of minerals extracted.
How to compute. The margin is the percentage of the income earned relative to the gross profit.
For example, if a mining company extracts minerals worth P1 million and incurs operational expenses amounting to P300,000, then its income is P700,000.
The margin is calculated by dividing the income (P700,000) by the gross revenue (P1 million), resulting in a 70% margin.
Under the House bill, this means that the government would collect 5% royalties on the P700,000 income earned, which is only P35,000.
Windfall profits tax
On top of the royalties, lawmakers are proposing to impose windfall profits tax on the income earned from metallic mining operations.
Windfall profits refer to the revenue generated out of unexpected circumstances.
If a mining operation earns 35% to 40% of the market value of minerals produced, only 1% of the income will be taxed.
There are a total of 10 margins with 5-10% differences from each other. Each margin indicates a windfall profits tax of 1% higher than the previous margin.
The highest possible tax is 10%, which is imposed on income equivalent to more than 80% of a mining operation’s gross output.
While the House approved its version of the mining fiscal regime, the Senate has yet to deliberate on its counterpart measure, Senate Bill 2826, which was filed on Sept. 17, 2024.
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