The House of Representatives Committee on Ways and Means has approved a new fiscal regime for the mining sector, which is set to increase revenues for mining by up to P37.5 billion in its first full year of implementation.
“As part of our continuing commitment to President Marcos and the Marcos administration, with the approval of this measure, the House committee on ways and means is done with all SONA and Cabinet tax bills,” Albay Rep. Joey Sarte Salceda, the panel’s chairperson and House resident economist, said.
Salceda, who was also the first principal author of the measure, said that the committee adopted the version of the Department of Finance, which would “bring the country’s effective tax rate on mining (considering all taxes) to 51 percent, up from 38 percent under the current system.”
“That brings us closer to the middle of the pack among major mining countries, instead of near the bottom of the list. 51 percent is a good number, because it brings us closer to Australia’s effective tax rate, at around 51 percent as well, counting royalties.”
“Among major countries, only Chile and South Africa have lower effective tax rates than us. This proposal brings us closer to Australia and Indonesia, which are our regional comparatives. China is at a very high 71 percent effective tax rate for gold mines,” Salceda added.
“With this measure, we are fulfilling our commitment to the President and to the DOF to raise revenues to fund PBBM’s priority programs,” Salceda said. Salceda explained that under Marcos’s Medium Term Fiscal Framework, which the House of Representatives adopted with Salceda as a major sponsor, the revenue program assumes a tax-to-GDP growth of 0.3 percent annually.
“The mining tax reform takes care of half of that assumption already. So, if enacted, it will be very good for President BBM’s bigger ambitions for infrastructure, agricultural revolution, and a solid Filipino middle class.”
Under the approved version, a royalty tax of five percent will be imposed on the market value of gross output of large-scale mining operations.
A minimum government share of 60 percent of net mining revenues, including all government taxes, fees, and charges, will be imposed on mining operations.
To justify this rate, Salceda cited the example of Oceana Gold’s mining agreement with the government, which entitles the government to a 60 percent share of net mining revenues, and the Malampaya project, whose contract stipulates a 60 percent share of net proceeds from petroleum activities to the national government.
A 10-percent export tax will also be levied on the market value of mineral ore exports, to encourage domestic processing of mineral products.
“Mining GVA has been declining, but exports value has been increasing, indicating that most exports are ores without domestic value-added. I hope to continue engaging stakeholders on how we can use such a charge to improve the domestic mining value-chain,” Salceda said.
Each mining project will also be treated as a separate tax entity. This, Salceda explained, “will help curb the practice of tax avoidance by allocating costs among related projects within the same company.”
“It reduces room for transfer pricing, or the manipulation of expenses of a company with various subsidiaries or related parties in order to avoid taxes.”
Likewise, to institutionalize transparency standards, the government will implement a mechanism for the public disclosure and scrutiny of all mining tax and revenue data in the extractives value chain. Salceda said that this will help
Salceda pointed out that such standards could help mining companies access cheaper and more foreign funds and technologies to make mining more efficient.
“It will also offset the reputational issues caused by our withdrawal from the Extractive Industries Transparency Initiative, a global standard for the good governance of oil, gas and mineral resources, which the country was a voluntary party to until its withdrawal in June this year.
Salceda, a former governor known for his advocacy for better mining governance during his term as local chief executive of Albay, said that he is “in favor of mining as long as it is sustainable, financially rewarding for the state, and economically beneficial to the people.”
“I am not anti-mining. I am not exactly pro-mining either. Like this tax reform, I am for economic growth, fiscal sustainability, and ecological balance. Our tax policy should encourage mining to meet these goals.”