By
Jasper Emmanuel Y. Arcalas & Rea Cu - September
19, 2018
THE country
may lose billions of pesos in investments if the government pushes through with
a proposed additional royalty fee on mining operations, which the Chamber of
Mines of the Philippines (COMP) described as “punishing” and a “disaster.”
COMP Chairman Gerard H.
Brimo said on Tuesday that the present Department of Finance (DOF)-backed
mining tax bill pending in Congress is disadvantageous to the local mining
sector, as it would make firms “more expensive” compared to other countries.
COMP compared the
proposed tax structure on mining with the present fiscal regime implemented by
Chile, Peru, South Africa, Canada and Australia, which are the world’s top
mineral producers.
“That bill [makes] us
more expensive than the five very large mining countries. It is punishing. It
is a problem for new projects going forward,” Brimo told reporters in an
interview on the sidelines of the first day of the Mining Philippines 2018
Conference on Tuesday.
“If that bill passes,
we are not going to see investments in our mineral sector anymore from quality
companies. Investors will not come here if the tax structure is too expensive,”
he added.
House Bill 7991,
introduced by Rep. Estrellita B. Suansing of Nueva Ecija, seeks to impose a
uniform 5-percent royalty rate across all mines operating inside and outside
mineral reservations. At present, only mines operating inside mineral
reservations are slapped with a 5 percent royalty of their gross value output.
The bill also
introduced a new revenue-sharing scheme between the government and the mining
firms.
The government would
collect an additional revenue share from the mining firm when the basic
government share is less than 50 percent of the mine’s net income.
The additional revenue
would be equivalent to the difference between the 50 percent of the mining
company’s net income and the government’s basic share.
Bills rushed
A lawmaker on Monday expressed
optimism that measures on mining taxation will be at the plenary level around
next month, with measures on mining taxation forming part of Package 2 plus of
the Comprehensive Tax Reform Program of the Department of Finance (DOF).
During a House
Committee on Ways and Means hearing on Monday, the Suansing bill and
another one—HB 422 by former Ways and Means Chairman Romero S. Quimbo of
Marikina—were discussed by the committee.
“If there is a
committee report this week then maybe in two weeks time it will be in
the plenary already. Any legislative agenda of the President should be our
priority,” Suansing told financial reporters.
Based on the DOF’s
presentation, the department is for a rationalized and a single fiscal regime
applicable to all mineral agreements, which promotes fairness and would
complement the Tax Reform for Acceleration and Inclusion (TRAIN) law.
A provision on royalty
is proposed at a rate of 5 percent which is seen to be applicable to all
metallic and nonmetallic minerals, small and large-scale mines, mineral
reservations (MR) and outside mineral reservations (OMR).
For the MRs a 5 percent
royalty is proposed, while the rate for OMRs are proposed to be phased in, at 3
percent for the first three years, a 4-percent rate in the fourth year, and a
5-percent rate starting the fifth year.
The introduction of a
thin capitalization and ring-fencing was also proposed and amendments to the
National Internal Revenue Code (NIRC) of 1997.
Revenue projections
The DOF said estimated
revenues, once the 5 percent royalty is imposed on OMRs alone in 2019, would
reach around P1.83 billion, P1.94 billion by 2020, P1.86 billion in 2021, P2.50
billion by 2022 and P3.16 billion by 2023.
“The estimates are just
for the royalty that is being proposed on nonmineral reservation areas. We do
not have estimates yet on the additional government share,” DOF Assistant
Secretary Ma. Teresa S. Habitan told financial reporters.
Low global prices
Brimo, who is also the
chairman and CEO of Nickel Asia Corp., said the proposed mining taxes could
worsen the present situation of copper and gold mines which are reeling from
low global prices.
“Everybody thinks we
are making a lot of money but the reality is that we are not. One [mine] is
losing money for the last two years and if you introduce an additional 5
percent royalty to their tax structure then you run the risk of those mine
closing down,” he said.
“One of them has a
community of about 20,000 people. So, imagine the closure of one of those
mines—its impact on the area if that happens,” he added.
Brimo estimates that
about 200,000 families are directly and indirectly dependent on the mining
industry.
He urged lawmakers and
government policy-makers to go slow on their proposal and instead create a
technical working group (TWG) that would sit down with the industry to come up
with a favorable fiscal regime for the mining sector.
“If we end up with a
tax structure that is not competitive, then we will not see quality investments
in the minerals sector. That’s a fact. Why would they come here?” he said.
“We are talking about
billions of pesos in lost investments and lost taxes, particularly employment
and social development that is critical [to the country],” he added.
Commodity-based scheme
For his part, Mines and
Geosciences Bureau Director Wilfredo G. Moncano maintained that they support
the proposed additional royalty rate but reiterated that they are more partial
to a commodity-based taxation scheme.
“We support the
initiative to impose royalties to areas outside the declared mineral
reservation but it should be on a mineral commodity basis,” Moncano said in an
interview with reporters at the same event.
“Because what is
applicable for nickel, for example, is not applicable to other commodities. For
gold and copper, 5 percent is too heavy, while for nickel it is low,” Moncano
added.
Moncano explained that
mining firms’ investments vary depending on the commodity they are producing,
hence, a uniform royalty rate would be disadvantageous.
“Nickel mines only pour
in small investments but the gold and copper [companies] have a bigger
investment as they establish processing plants. That costs hundreds of
million,” he said. “And if you impose 5-percent [royalty rate], unilateral,
[they will lose]. That’s our position.”
Moncano said the
royalty rates to be imposed on copper and gold mines should be lower than what
nickel firms are paying.
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