DoF still hoping to get its way on mining royalty

THE DEPARTMENT of Finance (DoF) will continue to push for its version of a new fiscal regime for the mining industry as the legislation moves forward through Congress, an official said Wednesday.

The House ways and means committee approved on Monday a tax reform bill that diluted the DoF’s original proposal to make it more acceptable to the mining industry.

Assistant Secretary Ma. Teresa S. Habitan said that although the measure as approved creates a new stream of revenue, it is still lower than the original proposal.

“As far as happiness goes, there is some level of satisfaction that the issue of compensating the State as owner of the resource (in the form of royalty) is openly being discussed and considered,” she said in an e-mail yesterday.

“There used to be no royalties paid by mines outside mineral reservations. Will push (in the) Senate for DoF version… Revenues (are smaller) in the House version,” she added, but did not provide an initial estimate of the potential government revenues.

The House bill establishes a revenue-sharing scheme to compensate the state as the owner of the mineral resource.

It proposes that mining firms outside areas declared mineral reservations should pay a royalty equivalent to 1-5% of their profit margins on a sliding scale, as well as an additional tax on their windfall profits.

The royalty comes on top of the corporate income tax, excise tax, local business tax, and other levies paid to indigenous people, among others.

Currently, most mines in the Philippines operate outside mineral reservations and do not pay such a royalty. Those operating within pay a royalty of 5% on gross output.

The bill lowered the royalty payable by firms inside mineral reservations to 3%.

The DoF proposes to harmonize the fiscal regime for mining by imposing a uniform royalty of 5% of gross output.

“The DoF proposal submitted to the Senate is the same as what we submitted in the House. That provides another opportunity to debate the best way to be responsible stewards of natural resources,” she said in an e-mail.

Ways and means committee chair Estrellita B. Suansing defended the bill, saying that lowering the royalty for miners within mineral reservations was fair.

“The disparity is great of (miners inside reservations pay royalty based on) margins and those inside (reservations) based on gross output. We brought them closer, because it’s unfair. We will lose a lot and we already have existing revenue based on gross output,” she said in a phone interview yesterday.

“The rationale behind is the government already has investments in mineral reservations, and there is some certainty that there are minerals,” she added, as opposed to outside reservations, where discovery is less certain.

The Chamber of Mines of the Philippines has said that the DoF’s version would kill the mining industry, as it would come on top of the doubling of mineral excise taxes from 2% to 4% on gross output under the Tax Reform for Acceleration and Inclusion (TRAIN) law that took effect in January.

It said a royalty based on margins is “equitable.”

“The Chamber of Mines does not believe that any further taxes imposed on the industry are warranted… Nevertheless, given the pressure for further tax increases, the Chamber is of the opinion that a structure based on a profits-based royalty and a windfall profits tax as passed by the House Ways and Means Committee, with the rates thereon tied to operating margins, is the most equitable manner in achieving this,” Rocky G. Dimaculangan, the chamber’s vice-president for communications, said in a mobile phone message yesterday.

“The Chamber notes that a profits-based royalty is the same structure used in other mineralrich countries such as Canada, Peru, Chile and South Africa. By adopting this, the structure will help sustain existing mining operations and hopefully encourage quality investments in the hugely untapped Philippine minerals sector,” he added.

The bill also seeks to deter miners from loading up on debt by disallowing the deduction of interest expense beyond certain indebtedness levels, with the threshold set at a 3:1 debt to equity ratio.

It also covers small-scale miners within and outside mineral reserves, who will be made to pay a royalty amounting to 1/10 of 1% of gross output.

The bill is now up for second reading at the House of Representatives. It forms part of a wideranging tax reform program that also seeks to overhaul the country’s corporate tax and incentives regime, streamline the property valuation system, harmonize taxes on financial products, raise “sin” taxes, and offer tax amnesty. —