Fiscal regime for mining industry urgently needed

President Benigno Aquino’s remaining months in office can still be an opportunity to push for a long awaited reform in the mining sector. Minerals are continuously being extracted despite the very small share the government is getting from the proceeds of extraction. A proposed measure to increase government share and simplify the fiscal regime in the mining industry is pending in the House of Congress filed by Representative Carlos M. Padilla.

House Bill (HB) 5843, also known as the “Fiscal Regime for Mineral and Mineral Products and Quarry Resources”, aims to impose royalty on all mining operations and revise the current ‘complex and differentiated fiscal regime’ faced by mining companies and government agencies tasked to work on tax administration.

The said bill proposes that government share from mineral extraction be raised, among others. If the mining industry is to contribute to sustainable development like in other countries, the government should raise its collections from mining revenues.

‘Complex and differentiated fiscal regime’

Currently, tax administration is very burdensome in the large-scale metallic mining sector. A separate tax collection system is faced by firms operating under a mineral production sharing agreement (MPSA) and another for those firms under a financial or technical assistance agreement (FTAA).

All firms, regardless of mining agreement, pay: (1) national taxes (i.e., corporate income, local business taxes and fees, custom duties, and value added tax), (2) real property taxes and local business taxes and fees. A 5% royalty payments and royalty payments for indigenous people are collected only when applicable. Firms operating under FTAAs pay an additional tax equal to 50 percent of net mining revenue on top of the payments mentioned after recovering the cost of operation.

The industry currently contributes less than 1% of GDP. This has been the situation in the past decade despite the high price of minerals in the international market. Excise taxes collected from tobacco and petroleum are higher than that of mining. Based on the EITI report, total payment of the industry to government is only around 6 billion pesos. According to the Cong. Padilla, earnings collected from mining are “not even enough to rehabilitate and compensate the destruction mining has brought to the environment”.

Proposed fiscal regime

HB 5843 creates a uniform tax regime for all large-scale metallic mines, simplifying tax administration. It also proposes that LGUs hosting mining operations get 80% of local business tax collected compared to status quo’s 70%. On top of this, half of the national government’s collection from mining will also be directed to LGUs with mining operations, compared to the current rate of 40%.

An additional 5% export tax on raw ore will be enforced as proposed by the bill to encourage processing of ores and downstream operations in the country. A ten percent (10%) surcharge on cash flow will be introduced to increase the government’s share, and consequently the LGUs’ share, from extractions especially when metal prices are high.

When approved, companies with multiple mining operations will also have their operations treated individually. This is to avoid companies rationalizing costs across their mining operations.

New features

The bill proposes that a Natural Resource Trust Fund be created by the national government and local government units. Proceeds coming from mine extractions will go directly to this Fund. The government and LGUs can use the Fund for investment purposes and spread the benefits of mining to future generations.

To exact transparency and accountability in the mining sector, the bill also proposes that the Philippine Extractive Industries and Transparency Initiative (PH EITI) be institutionalized. This will in effect separate the current PH EITI from the Department of Finance and have its own budget. It also exempts mining firms from confidentiality clauses helping the institutionalized PH-EITI be more effective in enforcing its mandate.

The bill was filed on June 04, 2015 and was forwarded to the Committee on Ways and Means on June 09, 2015.

About Bantay Kita

Bantay Kita (BK) is a coalition of organizations pushing for transparency and accountability in the extractive industry. It is affiliated with Publish What You Pay (PWYP) Coalition. It takes the lead in engaging mining companies, national government agencies as well as local government units towards achieving greater transparency and accountability in the mining industry through capacity-building, conducting dialogues with communities, and engaging in fiscal policy reforms.