House committee approves new tax regime for mining

By: Philippine Resources August 29, 2022

Photo credit: Philippine Nickel Industry Association

A House of Representatives panel on Wednesday approved a new fiscal regime for the mining sector, which is expected to generate PHP37.5 billion in its first full year of implementation.

The House ways and means committee approved a bill proposing a rationalized and single fiscal regime applicable to all existing and prospective large-scale metallic mines, regardless of location.

The committee adopted the version of the Department of Finance, which would “bring the country’s effective tax rate on mining (considering all taxes) to 51 percent, up from 38 percent under the current system.

Albay Rep. Joey Salceda, committee chair, said this would bring the Philippines "closer to the middle of the pack" among major mining countries, instead of near the bottom of the list.

"51 percent is a good number, because it brings us closer to Australia’s effective tax rate, at around 51 percent as well, counting royalties. Among major countries, only Chile and South Africa have lower effective tax rates than us. This proposal brings us closer to Australia and Indonesia, which are our regional comparatives. China is at a very high 71 percent effective tax rate for gold mines,” Salceda said.

He said the proposal would fulfill the panel's commitment to President Ferdinand "Bongbong" Marcos Jr. and the Department of Finance to raise revenues to fund the administration's priority programs.

“With this measure, we are fulfilling our commitment to the President and to the DOF to raise revenues to fund PBBM’s priority programs,” Salceda said.

Salceda explained that under Marcos’s Medium Term Fiscal Framework, the revenue program assumes a tax-to-gross domestic product (GDP) growth of 0.3 percent annually.

“The mining tax reform takes care of half of that assumption already. So, if enacted, it will be very good for President BBM’s bigger ambitions for infrastructure, agricultural revolution, and a solid Filipino middle class," he said.

The bill proposes the imposition of a royalty tax of 5 percent on the market value of gross output of large-scale mining operations.

It also states that a minimum government share of 60 percent of net mining revenues, including all government taxes, fees, and charges, will be imposed on mining operations.

A 10-percent export tax will also be levied on the market value of mineral ore exports, to encourage domestic processing of mineral products.

“Mining GVA has been declining, but exports value has been increasing, indicating that most exports are ores without domestic value-added. I hope to continue engaging stakeholders on how we can use such a charge to improve the domestic mining value-chain,” Salceda said.

Each mining project will also be treated as a separate tax entity, which would help curb the practice of tax avoidance by allocating costs among related projects within the same company, he noted.

“It reduces room for transfer pricing, or the manipulation of expenses of a company with various subsidiaries or related parties in order to avoid taxes," he said.

To institutionalize transparency standards, the government will implement a mechanism for the public disclosure and scrutiny of all mining tax and revenue data in the extractives value chain.

Salceda pointed out that such standards could help mining companies access cheaper and more foreign funds and technologies to make mining more efficient. By Filane Mikee Cervantes


Article courtesy of the Philippine News Agency

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