Mining fiscal regime being pushed at Senate to hurt miners

Apotential new fiscal regime on mining is now being deliberated in Senate, which would pave the way for the lifting of the ban on new mining projects. But the miners are not too enthusiastic about it.

Rocky Dimaculangan, vice president for corporate communications at Chamber of Mines of the Philippines (COMP), an organization of some of the country's largest mining operations, said the mining sector will find it "extremely difficult" to live with either of the fiscal regimes that are now being pushed for at the senate.

The Senate committee on ways and means has issued a Notice of Public Hearing on January 29 to take into consideration the proposed legislative measures on Fiscal Regime and Revenue Sharing Arrangement for the Mining Industry, Mines and Geosciences Bureau (MGB) said.

Among those deliberated in the said hearing were House Bill (HB) 8400, which was approved by the House of Representatives in November last year, and Senate Bill (SB) 225, 927, and 1979.

SB 225 and 927 both propose a fiscal regime and revenue sharing arrangement between the government and the mining companies wherein the latter's share shall be 10 percent of the operation's gross revenue or 55 percent of the Adjusted Net Mining Revenue (ANMR), whichever is higher.

In the event that the ANMR margin exceeds 50 percent due to increase in metal prices or other factors, the government, as owner of the minerals, shall get 55 percent of the threshold ANMR plus 60 percent on the excess ANMR.

SB 1979, on the other hand, proposes to retain the royalty rate of 5 percent for all mining

operations within Mineral Reservations, while for mining operations located outside Mineral Reservations, a phased-in rate is prescribed.

This version is akin to the original HB 8400, which was originally opposed by the miners and was eventually amended in a way that mining companies find more tolerable.

Dimaculangan said the Senate must adopt a law that will implement a mining tax structure similar to HB 8400.

From the original proposal of the Department of Finance (DOF), which imposes a 5 percent royalty on all mining firms in and out of mineral reservations, HB 8400 would now only mandate miners outside of mineral reservations to pay to the government a margin-based royalty on income from mining operations.

"The Chamber stands by its position that a structure based on a profits-based royalty and a windfall profits tax as passed by the House of Representatives, with the rates thereon tied to operating margins, is the most equitable manner in achieving this," Dimaculangan said.

According to him, a profits-based royalty is the same structure used in other mineral-rich 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 further said.

A fiscal regime far from this would be detrimental to the mining industry, the COMP official added.

A new fiscal regime is needed before the government can lift the ban on new mining projects, which was put in place during the Aquino administration.

Under EO 79, no new mineral agreements should be approved “until a legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect.”

In December, miners were left in lobbying for the lifting of EO 79.

The Department of Environment and Natural Resources (DENR), the government agency tasked to regulate the mining industry through MGB, particularly said it is now up to the Department of Finance (DOF) what ideal tax structure to slap against mining companies as well as to push for the lifting of ban on new mining projects.

When the excise tax hike on mineral products from 2 percent to 4 percent under The Tax Reform for Acceleration and Inclusion (TRAIN) Law was implemented, the DENR argued that it should already be considered as a new tax regime.

But the DOF clarified that TRAIN only increased the excise taxes and did not cover the implementation of a new fiscal regime for mining.

As of November last year, the mining sector continues to suffer from a decline in output but continued to net higher on the back of improved metal prices, which MGB described as "saving grace" for the industry.

During the first nine months of 2018, the country’s metallic production value grew by 11.25 percent year on year during the first nine months of the year from P83.26 billion to P92.62 billion.

However, mine production of gold, silver, nickel direct shipping ore (DSO) and mixed nickel-cobalt sulfide (MNCS) remained sluggish during the period.