DoF-backed mining tax reform filed in House of Representatives
A LAWMAKER has filed a mining tax reform bill in the House of Representatives that forms part of the second tranche of reforms designed to make the country’s taxation regime more equitable while generating additional revenues to support the government’s infrastructure development program.
Nueva Ecija (1st District) Rep. Estrellita B. Suansing filed House Bill No. 7951 on July 24 royalties for all large-scale and smallscale metal and non-metal mines, whether or not they are declared as mineral reservations.
The bill inserts a new section in the National Internal Revenue Code of 1997 that proposes a three percent royalty based on the market value of the gross output of mines located outside mineral reservations on the first three years of effectivity of the measure that will be increased to four percent in the fourth year and five percent in the fifth year.
It retains the five percent royalty based on the market value of the gross output of mineral products extracted or produced within mineral reserves, exclusive of all other taxes.
Finance Undersecretary Karl Kendrick T. Chua said that Ms. Suansing’s bill adopted the Department of Finance’s (DoF) proposal, which was submitted to both chambers of Congress on June 26.
“Presently, for large mines, mining contracts offering varying fiscal regimes and, therefore, fiscal burden are differentiated. The fiscal regime depends on whether the mine is operating on a mineral reservation and whether the mine is operated under a Mineral Production Sharing Agreement
(MPSA) or Financial and Technical Assistance Agreement (FTAA),” said Ms. Suansing in her explanatory note.
She said that almost all mining contracts are under MPSAs, while those in mineral reservations are composed mainly of nickel mines and that all FTAA agreements are for mines outside mineral reservations.
“A rationalized and a single fiscal regime applicable to all mineral agreements and FTAA is sought as it promotes fairness. The proposal under the bill shall be applicable to all existing and prospective large metallic, non-metallic and small-scale mines, and shall be applied to all mines regardless of whether the mine is located outside or inside a mineral reservation,” she added.
Ms. Suansing said the proposal “is structured to satisfy the objectives of government for a reasonable increased share without comprising the mining sector’s need for reasonable return on its investment.”
The bill also proposes to limit interest expense deductions of mining contractors “in order for the businesses not to depend on excessive debt funding which would result in high interest expense deduction, and thereby reducing corporate tax liability.”
“If a mining contractor has a debtto-equity ratio in excess of 1.5 to 1 at any time during the taxable year, a deduction is disallowed for the interest paid by the contractor during that year on that part of the debt that exceeds the 1.5 to 1 ratio for the period the ratio was exceeded,” the bill read.
Existing mineral agreements and FTAAs that do not provide terms and conditions resulting from repeal or amendment of existing laws or regulations will continue to be governed by their existing terms and conditions.
The same bill retains the corporate income tax for mining, but proposes an additional government share “when the basic government share is less than 50% of the net mining revenue,” which is the difference between the 50% of net mining revenue and the basic government share during the calendar year.
The government currently gets an additional share only under the FTAA regime.
The comprehensive mining tax reform is part of the so-called Package 2+, which also includes further hikes in alcohol and tobacco excise taxes.
Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act, had already increased the excise tax on non-metal and metal minerals to four percent of the gross output from two percent when that law — the first of up to five planned tax reform packages — took effect on Jan. 1.
To recall, the Finance department under previous administration had proposed to the 16th Congress then to increase the government’s share in revenues from mining operations, but that measure fell through due to lack of time.