PH’s mining industry faces fin’l crisis with tax proposal

Published March 13, 2019, 10:00 PM By Madelaine B. Miraflor

https://business.mb.com.ph/2019/03/13/phs-mining-industry-faces-finl-crisis-with-tax-proposal/

The country’s mining sector will be in serious financial trouble once the government imposes a tax regime currently being pushed for by the Department of Finance (DOF), which could lead to the industry’s eventual downturn.

Gerard Brimo, chairman of the Chamber of Mines of the Philippines (COMP), an organization of some of the country’s largest mining operations, said in a roundtable discussion with Business Bulletin that the DOF is “misguided” as to what the reasonable tax regime is that should be applied to mining sector.

The discussion on new fiscal regime in the mining sector has been going on for years. It formally started in 2012 when former President Benigno Aquino 3rd issued Executive Order (EO) 79, wherein no new mineral agreements shall be approved until a legislation rationalizing existing revenue-sharing schemes and mechanisms shall have taken effect.

When the Duterte administration took over, the government wanted to make sure the country will benefit more from the mining sector, especially because the Philippines is one of the most mineralized countries in the world.

As a start, the Senate decided to include in the package one of Tax Reform for Acceleration and Inclusion (TRAIN) an increase in the excise tax rate for minerals from 2 percent to 4 percent.

And since this shouldn’t be enough for the EO 79 to be lifted, there is now a move to pass an entirely new fiscal regime. Then in November last year, the House of Representatives passed on third and final reading House Bill (HB) 8400, which seeks to “rationalize and institute a single fiscal regime applicable to all mineral agreements.”

From the original proposal of the DOF, which imposes a 5 percent royalty on all mining firms in and out of mineral reservations, HB 8400 now only mandate miners outside of mineral reservations to pay to the government a margin-based royalty on income from mining operations.

But the DOF on Tuesday has made a last-minute appeal to the Senate to pass its original proposal of a uniform royalty rate of 5 percent for all mining operations, whether located inside or outside a mineral reservation.

DOF’s proposal is adopted in the Senate Bill (SB) 1979, which is currently being deliberated in the Senate.

Brimo said if this is passed, the government’s plan to gain more revenues from the mining sector will no longer become reality.

His statement contradicts what Finance Assistant Secretary Ma. Teresa Habitan told senators that the DOF proposal would haul in an estimated P7.2 billion in incremental revenues to the state coffers in the initial year of its implementation.
This, according to Habitan, is double the projected amount of P3.7 billion that the government will collect from an HB 8400 tax regime.

“If the 5 percent royalty is implemented plus the top-up tax of up to 50 percent for FTAA [Financial and Technical Assistance Agreement] gets retained, then forget about this industry,” Brimo said.

“If the government is out to get more revenues, it can’t get anything from this industry. We’re very small. They need to increase the investments. Enlarge the pie,” he added.

Brimo said that if the DOF proposal gets adopted in Senate, a couple of big copper mines would close down, saying it’s not true that the government would earn as much as P7 billion from mining tax.

Right now, the mining industry contributes only 0.85 percent, or P134.5 billion, to the country’s total gross domestic product (GDP). This is despite the fact the the country’s mineral resources has an estimated value of around US.1.4 trillion.

The mining sector also operates in 2.35 percent of the 9 million hectares of land in the country with high mineral potential, with only 48 metallic mines and 61 non-metallic mines that are operational.

Brimo said that even if EO 79 and the ban on open-pit mine are lifted, the industry will still “absolutely” find it hard to develop if the DOF-proposed tax regime will be implemented.

To date, there are three open pit projects on hold due to the ban on open-pit mine, namely Tampakan Copper Project, King-king Copper Gold Project, and Silangan Copper and Gold Project.

Brimo said these projects could bring the total industry contribution to exports to 9 percent and total contribution to GDP to 1.5 percent.

Right now, Mines and Geosciences Bureau (MGB) is now taking a look at possible revisions that could be applied to the Implementing Rules and Regulaitons (IRR) of the Philippine Mining Act of 1995, the main legislation that governs all mining and extractive operations in the country.

To be specific, MGB Director Wilfredo G. Moncano has recently ordered the review of the Department of Environment and Natural Resources’s (DENR) Administrative Order (DAO) No. 2010-21, which was issued in 2010 to also implement a revised IRR for Philippine Mining Act.

A statement from MGB showed that Moncano’s directive is just the agency’s response to the mandate given under the Republic Act No. 11032 or “an act promoting ease of doing business and efficient delivery of government services, amending for the purpose of republic act no. 9485, otherwise known as the anti-red tape act of 2007, and for other purposes”.

The agency, tasked to regulate the mining sector, also wants to come up with a streamlined regulatory framework and requirements for the securing of mining rights, as well as a more simplified procedures for the mining applicants, contractors, permittee, or permit holders.

The said review and possible revision of DAO No. 2010-21 was agreed upon to discuss in the upcoming workshop of MGB to be conducted tentatively next month.

The meeting will be attended by the personnel of MGB’s Mining Tenements Division and the Legal Service Division as well as their counterparts in the Regional Offices (ROs).

The MGB is currently soliciting issues, comments, and suggestions from the ROs for the said workshop mechanics and outlines.

Right now, the Philippines ranks in the bottom seven out of 91 jurisdictions in terms of mining policies and last in terms of investment attractiveness in the Australia or Oceania region, a Fraser Institute 2017 survey showed.

Also, the Philippines is losing billions of dollars in potential mining investments because of the policy stalemate plaguing the industry.

Dindo Manhit, President of Stratbase ADR Institute, said while countries such as Australia and Indonesia managed to develop their mineral endowments as a strategic pillar of their economies, the Philippine mining industry has become stagnant, following the issuance of EO 79 and DENR’s DAO No. 2017-10, which both effectively banned open pit mining.

“Our ability to efficiently and sustainably harvest the country’s mineral wealth potential, estimated to be worth more than a trillion dollars, just sitting underground and basically untapped, has been mired in prolonged legal and regulatory challenges,” Manhit said.

“To put in perspective just how much opportunity we are losing, a 2016 list of just 11 pending projects was estimated to total over US$23 billion in capital investments. Compare this to the official figures of the BSP on our total foreign direct investment from January to November last year which totaled only US$9.06 billion,” he added.