THE Department of Finance (DOF) is proposing the imposition of a 4-tier margin-based royalty ranging from 1.5 percent to 5 percent on income from mining operations outside of mineral reservations.
According to the DOF, the proposal was raised during a briefing on priority tax measures by Fiscal Policy and Monitoring Group (FPMG) Officer-in-Charge Undersecretary Karlo Fermin S. Adriano for miners, mining stakeholders and members of civil society groups.
According to the DOF, its proposed “Rationalization of the Mining Fiscal Regime” (RMFR) policy would simplify the tax system, ensure the government’s fair share in mining revenues and establish good governance in the mining industry.
“This is just the first step. We can be a major player in this global economy in terms of mineral production. We just have to realize it with the right policies,” Adriano was quoted as saying during the briefing last Wednesday.
Under the DOF’s proposal, the 4-tier margin-based royalty will make it simpler for investors and the Bureau of Internal Revenue (BIR) to compute the corresponding tax rates as compared to the 8-tier structure proposed by House Bill (HB) 8937.
Priority tax
TWO years ago, the DOF expressed that the imposition of a royalty rate of up to 5 percent applicable to all large-scale mining operations will generate an incremental revenue of about P5 billion.
In light of the sudden increases in the world prices of metal, the DOF is also proposing a 4-tier margin-based windfall profits tax rate ranging from 1.5 percent to 10 percent on income from mining operations.
According to the DOF, mines operating within a mineral reservation are taxed under the current regime. Mining obligations vary depending on the mining agreement, which can be undertaken via the Mineral Production Sharing Agreement and Financial or Technical Assistance Agreement (FTAA).
In addition, the DOF proposed earlier the imposition of a minimum government share when the basic government share is less than 60 percent of the net mining revenue, saying that this is only applicable to FTAAs.
With the proposed refined priority tax measures through the RMFR, the DOF expects the state to earn P37.52 billion in revenues if HB 8937 is enacted. (See: https://businessmirror.com.ph/2022/08/24/bill-sees-govt-earning-%e2%82%a737-52b-from-new-mining-fiscal-regime/)
‘Unstable environment’
ACCORDING to the DOF, Adriano met with members of the following: Chamber of Mines of the Philippines (COMP); advocacy group Bantay Kita Inc.; Philippine Nickel Industry Association (PNIA); and, government-run organization Philippine Extractive Industries Transparency Initiative (PH-EITI). Representatives from the Bureau of Internal Revenue (BIR) and the National Tax Research Center (NTRC) also attended the briefing, according to the DOF.
The DOF said those who attended the meeting expressed support for their proposal, even giving inputs to remedy the “unstable policy environment.”
Finance Secretary Ralph G. Recto said the Philippines’s mining potential remains untapped despite beginning the discussions to rationalize the country’s mining fiscal regime in 2012.
Recto said that with the proposal, the nation will finally receive its rightful share of mining revenues to fund the country’s development goals.
“We are always willing to work with stakeholders to improve our proposals. I trust that Congress will also throw their support behind this long-overdue reform. The passage of this reform will establish a predictable and stable policy environment that is conducive to investments,” Recto added.
Legislative agenda
LAST year, the Lower House approved with amendments, HB 8937, “seeking to enhance the fiscal regime for the mining industry.”
“The bill would amend and create sections in Republic Act 8424 or the ‘National Internal Revenue Code of 1997,’ as amended. Salient features of HB 8937 include: increasing the government’s equal share of natural resource extraction; implementing a rationalized fiscal regime for large-scale metallic mining and, promoting accountability and openness in the handling of resources produced from extractive industries,” read a statement by the House of Representatives dated September 18, 2023.
According to Congress, the bill also imposes a 3-percent royalty fee on large-scale metallic mining operations with mineral reservations. Under HB 8937, small-scale metallic mining companies would be subject to one-tenth of one percent of gross output of the mineral products extracted.
The measure is principally authored by Albay Rep. Joey Sarte Salceda, Nueva Ecija Rep. Mikaela Angela B. Suansing and Camarines Sur Rep. Luis Raymund F. Villafuerte, among others.
Aside from the RMFR, the DOF’s legislative agenda includes the following: imposing a value-added tax on digital service providers; the imposition of excise tax on single-use plastics; Package 4 of the Comprehensive Tax Reform Program; and, the reform on the motor vehicle users’ charge.