The country’s biggest mining lobby on Monday complained about being kept in the dark on the proposed revenue-sharing scheme for the minerals industry.
Nelia Halcon, executive vice president of the Chamber of Mines of the Philippines (COMP), said the government has left mining industry players guessing on the content of the draft for the revenue-sharing scheme that has been approved by the Mineral Industry Coordinating Council (MICC).
“We have not received a copy that we can review. We only learned that they have already approved the final draft, and its contents, through media,” Halcon told reporters.
Earlier, Mines and Geosciences Bureau (MGB) Director Leo Jasareno said that the MICC, an interagency body tasked to oversee reform in the mining sector, has officially approved the revenue-sharing scheme for the industry.
Under the approved plan submitted for consideration by President Benigno Aquino 3rd, mining companies will be levied 10-percent tax on their gross revenue, or a 55-45 percent share of the adjusted net mining revenues (ANMR)—whichever is higher.
“The government will get the larger portion in the sharing agreement,” Jasareno said, adding that the tax system will be in lieu of all national and local taxes except real property tax, VAT (value-added tax), capital gains tax, stock transaction tax, doc stamp tax, SEC (Securities and Exchange Commission) fee, donor’s tax, environment fee.
The MGB chief also said that the government would collect a certain percentage from windfall profits on top of the 55 percent adjusted net, or 10 percent gross revenues collected from a mining company.
In a letter to Executive Secretary Paquito Ochoa Jr., COMP Chairman Artemio Disini expressed “deep concern” over the approval of the revenue-sharing bill, saying that they were “dismayed that the MICC moved forward with the increase in the tax policy without taking into consideration comments and observations not only from the mining industry that will be directly affected by the said policy but by authoritative third parties.”
“The MICC-proposed tax structure cannot, by any measure, be considered as fair or equitable, much less competitive,” Disini said in the letter dated July 3.
“It will not attract quality investment that the country needs to be able to develop its mineral resources in a responsible manner,” he said, noting that there are other countries with more reasonable tax structures and equally well endowed (if not better) than the Philippines.
The executive stressed that the results of the financial modeling indicate that the government shares under such proposal on the basis of average effective tax rate, a metric used by the International Monetary Fund (IMF) in its tax study, will be much higher than large producing countries such as Canada, Australia, Peru, South Africa, Chile and Papua New Guinea.
Disini said that the COMP is not alone in arriving at the conclusion, noting that in 2012, an IMF study commissioned by the Department of Finance found that the current Financial Technical Assistance Agreement regime is already “tough for investors” and “not competitive internationally,” and that the low contribution of the mining sector to government revenue is not due to the Philippine fiscal regime for mining being generous to the contractors by international standards.
He also said that in 2013, the Asian Institute of Management did its own study on the matter and found that the current average tax payments made by two large local mining companies are actually much higher than the industry-wide average reported by the government.
In 2014, the Foreign Chamber of the Philippines wrote to President Aquino, saying that such a fiscal regime will have an extremely negative impact on future investments in the mineral sector. It also urged the President to reconsider their proposal in this light.
“We are, thus, perplexed with the apparent disregard by the government of the positions voiced by the IMF, the AIM, and the Foreign Chambers and the mining industry, for the need to develop a tax structure that provides a fair share to government while at the same time being competitive in order to attract quality investors, which is ultimately the only way to not only expand government revenues in the long run but generate much needed employment and social expenditure,” Disini said.
The executive said that the government’s perception that the mining industry is not paying enough taxes is premised on a wrong interpretation of MGB statistics.
“The total taxes of P13.4 billion in 2010 over total gross production value of P145.3 billion was 9.2 percent, giving the impression that the industry was paying only a minuscule amount to the government. However, that analysis includes output from small scale gold miners, whose sale to the Bangko Sentral ng Pilipinas is on a ‘no names’ basis, where there are no taxes paid, hence the wrong impression,” he said.
He added that by removing the output of small-scale gold production, the ratio is 13.1 percent, but may still be inaccurate as pointed out by the AIM study.
Ronald Recidoro, COMP vice president for Legal and Policy, said that they would push for a “sliding” revenue sharing scheme to the Office of the President, based on actual profits made by mining companies.
“We are open to the idea of a sliding tax rate which is based on income,” Recidoro said, adding that the flexible tax system will help miners sustain production during difficult market conditions.
The executive also said that they may eventually back a pending bill filed by 1-BAP party-list Rep. Silvestre Bello 3rd and Taguig City Rep. Lino Cayetano, which seeks to rationalize the sharing of revenues between the government and large-scale mining companies in the extraction of the country’s mineral resources.
Under House Bill 3586 or “An Act Rationalizing Revenue-Sharing in the Large-Scale Metallic Mineral Resource Industry,” the government gets 2 to 5 percent of the net mining profits from gold when world prices are below $1,440 per ounce to over $2,200 per ounce.
For copper, the government gets 2 percent from the net mining revenue when the price of metal in the world market is below $2.50 per pound, and goes to a high of 5 percent if the price hits more than $4.40 per pound.
For nickel, chromite and other metallic minerals and ores, the government gets a fixed royalty of 7 percent from the net mining revenue if the resource is taken within a proclaimed mineral reservation.
If extracted outside a proclaimed mineral reservation, a fixed royalty of 4 percent is imposed.