Mining tax rate could top ASEAN

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Date Posted: 19 Aug 2015

The proposed new mining revenue-sharing scheme awaiting approval at the House of Representatives could raise the government’s take from the industry to as much as 71% — potentially the steepest among members of the Association of Southeast Asian Nations (ASEAN), a Finance official told legislators in a public hearing yesterday in which mining executives warned that investors may shun the country for its rivals.

Representatives of mining companies who attended the hearing of the House Ways and Means committee formally reiterated their industry’s opposition to the government’s proposed new mining fiscal regime, saying that proponents should first determine the average effective tax rate (AETR) — based on government revenue share, as well as national and local taxes — under the bill and compare it to those of the country’s competitors.

The committee yesterday held its first public hearing on three proposals for a new revenue-sharing scheme for the mining sector, including the version crafted by the inter-agency Mining Industry Coordinating Council (MICC).

The MICC version was filed as House Bill (HB) No. 5367 on Feb. 3, which was the product of consultations with stakeholders since 2012.

Under the measure, the government as “owner of the minerals” will get each year 10% of a miner’s gross revenues or 55% of “adjusted net mining revenues” (ANMR: gross revenue less production and other deductible costs but not to exceed 10% of direct mining, milling and processing costs), whichever is higher; and 60% of any windfall profit (in case the “ANMR margin” — ANMR divided by gross revenue — exceeds 50%, the government gets 55% of that threshold of 50% of gross revenue plus 60% of the excess).

To recall, the bill provides that the government’s share will be in lieu of corporate income tax, royalty to indigenous cultural communities, duties on imported specialized capital mining equipment, mayor’s fee and/or business permits “and other fees and charges imposed by host local government units.

However, mining companies will still have to pay other levies, namely: value added tax, capital gains tax, stock transaction tax, documentary stamp tax, withholding tax on passive income, donor’s tax, environmental fee, real property tax, Securities and Exchange Commission fee, water usage fee, as well as administrative and judicial costs and penalties.

The proposed rates are significantly higher than the prevailing revenue sharing formula, under which the government gets a 50% share in profits of foreign miners operating in the Philippines under Financial or Technical Assistance Agreements (FTAAs) and a 2% excise tax on actual market value of output under Mineral Production Sharing Agreements (MPSAs) with local companies.

Two other proposals will also be considered by the committee. These are HB 3586 filed by 1-BAP party-list Rep. Silvestre H. Bello III and Taguig City Rep. Lino S. Cayetano (2nd district) that seeks a 60% revenue share for the national government and 15% for the host local government, and HB 5843 of Deputy Speaker and Nueva Vizcaya Rep. Carlos M. Padilla that proposes a 5% mining royalty, 10% cash flow surcharge and 5% ore export tax to be charged firms on top of national and local taxes.

“Given the minimal revenues that the Philippine mining industry has been able to contribute to the government over the years and as compared with other ASEAN states, there is an urgent need to revisit the current revenue-sharing scheme,” Ways and Means committee chairman Rep. Romero Federico S. Quimbo of Marikina City (2nd district) said during the hearing.

“What the committee seeks to do is to present a uniform, predictable, and fair tax regime that will encourage more responsible investors.”

Mr. Quimbo also cited the need to raise government share in mining profits, citing data showing that mining contributed an average of just 1.18% to total government revenues from 2009 to 2012 despite the country’s untapped mineral resources.

During the hearing, an official of the Department of Finance (DoF) said simulations showed MICC’s version would give the national government the biggest share among the three bills.

“We actually have a simulation in the technical working group on the impact of the MICC bill, House Bills 3586 and 5843 and compared this with existing MPSA regime and the regime under FTAA,” Elsa P. Agustin, director of the DoF’s Policy Division, said during the hearing.

“Our assumption is the 10-year average price of copper and gold, and the size of the hypothetical firm is the size of Tampakan [gold-copper project in Mindanao that, at $5.9 billion, had been considered the country’s biggest potential foreign investment until Anglo-Swiss miner Glencore plc sold its controlling stake earlier this month]. This is based on data we gathered from MGB (Mines and Geosciences Bureau),” Ms. Agustin said.

“As far as AETR is concerned, the existing MPSA is giving government the lowest at 47%, FTAA at 62%, MICC bill at 71%, (HB) 5843 will be giving government 63%, and (HB) 3586 is giving 50% which is close to MPSA.”

“The 71%… compared… with other ASEAN countries, this is higher… But the instruction to us is to get an AETR higher than FTAA (62%). So 71% is certainly higher.”

The DoF is among the lead agencies in the MICC that crafted the consensus bill for the government.

The Chamber of Mines of the Philippines had expressed concern in March over the MICC bill, warning of “far-reaching consequences” to the industry.

In yesterday’s House hearing, a leader of a foreign business group cautioned that the state proposal could backfire.

“If you want to raise a lot more taxes, you have to have a competitive average effective tax rate,” said Julian H. Payne, president of the Canadian Chamber of Commerce of the Philippines.

“If your objective in these bills is to raise money in taxes, then you have to be competitive because you got to attract investments in order to increase the base for your taxes,” he explained.

“You can raise it to 70-80%, but if you have a very low base, the tax take would be less.”

In the same hearing, Lolot D. Manigsaca, finance and services director of local gold miner Greenstone Resources Corp. also told lawmakers: “To change that tax regime in the middle of the game would be disastrous on the part of the investors and it will scare them off.”

“We’d like to support a bill that is customized to world prices because that’s the reality… We want a fiscal regime that would equate the risks with the return.”

In an e-mail to journalists yesterday, advocacy group Alyansa Tigil Mina backed HB 5843, particularly its provisions that require mining profits to be used for health, education and environmental development projects.

The group opposed the MICC bill, arguing that it does not provide mechanisms for royalties to mining-affected communities.

With the measure facing a small legislating window and the risk of inaction at the plenary level as the May 2016 national elections near, Mr. Quimbo said: “I will not go on a technical working group only because I feel like… sometimes it delays it, so I want to take it up in the committee proper.”

He asked the DoF to determine AETR “over a given period” in order to have a better basis for discussions.

“I think we have to come up with a fair estimation and that average estimated tax rate has to be more competitive than other countries,” Mr. Quimbo said.

“If it is higher than other countries, then the objective of raising more revenues will not happen because people will not come in.”

A second hearing on the measures will be held next Tuesday.


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