THE country’s big mining lobby wants the government to drop the proposed revenue-sharing scheme, saying there is no need to raise taxes to increase its share from the mineral industry.
Ronald Recidoro, vice president for policy of the Chamber of Mines of the Philippines (COMP), said that the Aquino administration should instead increase linkages and maximize benefit streams from the mining industry to increase government’s take from the country’s mineral resources.
“If government wants a bigger take from mining, there are many other options it can explore before increasing the tax on mining, which is a step that will likely kill the industry,” Recidoro said in a statement.
The mining executive said the government could encourage local investment and development linkages to supply and interconnect with mining projects. It can also revive idle or abandoned mines to generate new employment and revenues.
“Most importantly, it can [and should]enforce taxation of small-scale mining projects and non-metallic or quarry operations for stones and sand and gravel. Any of these options will result in increased revenues for government without imposing an additional burden on an already heavily taxed industry,” he added.
Simply increasing the tax on mining projects, according to Recidoro, will have an enormously negative effect.
“With very few projects far down the pipeline, an increased tax on new projects will not immediately result in a bigger take for government. But what it will definitely do is make the Philippines uncompetitive—killing investor interest and inhibiting the growth of the sector,” he said.
“In effect, increasing the tax will kill the goose that lays the golden eggs,” he added.
To recall, the Mineral Industry Coordinating Council (MICC), an inter-agency body tasked to lay down this administration’s policy on the mining industry, said it may impose a 10-percent tax on gross revenues or a 55-percent share of the adjusted net mining revenues (ANMR)—whichever is higher.
Mines and Geoscience Bureau director Leo Jasareno said that they continue to dialogue with various mining industry stakeholders as the government continues to push for a bigger take from minerals.
“The government will not propose something that it deemed detrimental or disadvantageous, or not competitive for the industry. We feel that the government is not getting its fair share from the mineral industry and that a decision has to be made,” Jasareno said.
As of writing, Jasareno said that the MICC is meeting to finalize the proposed revenue sharing scheme, adding that they are hopeful that it will be submitted to President Benigno Aquino 3rd for an endorsement to Congress.
“This has been long delayed. Hopefully, we can get a consensus on this in the meeting,” he added.
It has been nearly two years since Aquino signed Executive Order No. 79 and MICC has yet to come up with a revenue sharing bill ready for Congress.
Meanwhile, Recidoro said industry players and analysts find the 10-percent tax on gross revenues or the 55-percent share of ANMR too high and that it would only make the country unattractive as an investment destination.
Given the chilling effect increased taxes will have on investments, COMP suggests that the key to increasing the mining industry’s contribution to the economy lies in increased mining investments and in enhancing the local backward and forward linkages in the sector—essentially maximizing mining’s multiplier effect, especially in the areas where mines operate.
“With proper linkages, programs created by the government coupled with transparency in tax collections and disbursements, the Philippine mining industry can go a long way in helping deal with poverty and be an example of inclusive growth,” said Jesse Ang of International Finance Corp. (IFC).
He added that mining “can be a strong catalyst” for the country if managed properly.
“With a proper linkages program, with proper transparency—you know where the [tax]payments are going—to make sure that money goes to the communities,” Ang said.
The IFC official also said mining as an industry can help government drive infrastructure projects to greater levels so that the Philippines can move to the next stage of economic growth beyond being consumption-driven.
By encouraging local source and supply linkages, the mining industry’s most valuable contribution to the country’s growth could come from its ability to generate further benefits to the economy through productive linkages with other sectors.
“If interconnected with the mining project, local suppliers of goods and services needed by the mine and its employees will grow as the mine operation progresses—encouraging inclusive growth and yielding even more tax revenue for government,” he said.
For backward and forward linkages to have the desired impact, Recidoro said it is not enough that government impose local content and value-addition conditions on mining contractors, and provide incentives for investors to structure projects.
“Government needs to come up with complementary strategies to create the business environment and public sector institutions that encourage growth and deepen the integration of mineral projects into national and regional economies,” he said.
He added that the government must make mineral processing a viable investment, developing upstream capital goods and service industries. It must create and improve needed infrastructure, particularly power and transport. Policymakers need to maximize the beneficial spillover effects of infrastructure triggered by mining by planning around resource corridors.
Policies should also encourage the collateral or integral use of the minerals produced by other economic sectors. Expanded infrastructure will also promote rural development, the mining executive said.