Review tax rate approval on mining

Raising tax rates does not seem to be the viable option this time, especially as businesses are only beginning to recover from the effects of the pandemic.

September 3, 2022

A few weeks ago, the Committee on Ways and Means of the House of Representatives approved a new measure seeking to rationalize a fiscal regime and raise the effective tax rates on mining companies.

The committee adopted the version of the Department of Finance, which, if passed into law, would raise the effective tax rate on mining to 51 percent and generate some P37.5 billion in revenues. The proposed rate would also make the Philippines at par with other countries, such as Australia and Indonesia.

Under the approved version, mining companies will be imposed a royalty tax of five percent on the market value of the gross output of large-scale mining operations, as well as a minimum government share of 60 percent on net mining revenues, including all government taxes, fees and charges.

A 10-percent tax will also be levied on the market value of mineral ore exports to encourage companies to process mineral products locally.

The mining sector plays a huge role in the country’s economic growth. Even at the height of the pandemic, the sector contributed P102.3 billion to the country’s 2020 gross domestic product, according to a report by the Department of Environment and Natural Resources’ Mining and Geosciences Bureau released in June 2021.

However, raising tax rates does not seem to be the viable option this time, especially as businesses are only beginning to recover from the effects of the pandemic.

In fact, the tax rate hike would only go against the promise of the government to revitalize the sector; would not be conducive to its growth and instead, will prevent it from playing a major role in economic recovery.

The Chamber of Mines of the Philippines has already expressed its apprehension on the approval, lamenting the lack of consultation within the industry, and saying that the onerous provisions of the bill would only make the mining industry one of the highest taxed in the world.

Three flagship mining projects, which are seen to contribute to economic development and prosper to the areas they are located, are also seen at stake. This includes the Tampakan Copper-Gold project by Glencore Xtrata and Indofil, which is valued at around $5.9 billion and is the single largest foreign direct investment in the country to date.

The Philippines is a capital-intensive country. We are one of the countries that are heavily reliant on the entry of more investors. Raising tax rates may be the only immediate option to generate funds, but the tax bill will only put into question the stability of Philippine policies, which are detrimental to attracting foreign investments.

According to COMP, foreign investors will only set sight on other markets where mineral resources are found.

The House Committee, chaired by Rep. Joey Salceda, should revisit the approval of the tax structure and invite experts and industry stakeholders for consultations and give comments and recommendations, so that both parties are given an opportunity to contribute to the passage of a more viable fiscal regime.

On the other hand, if tax increases are unavoidable, the tax structure should not be onerous enough to stop more investments from coming in. At the end of the day, the country needs to strike a balance between raising revenues and protecting businesses.

I had a chance to speak to Chamber of Mines chairperson Atty. Mike Toledo and he said, “We are with government in pursuing a development agenda for mining in order to spur economic recovery and growth, but we also need its support to further develop the industry through policies that will elevate mining to the next level. We hope our plea to rationalize taxation will be one of the steps that will be addressed to help us pursue this.” I can’t agree more.

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