Resource tax now

The emergence of a sovereign wealth fund in early 2000 has been met with a mix of trepidation and curiosity, but its importance in international investing could not be understated. In its purest form, an SWF is intended to stabilize the country's economy by diversifying the distribution, management, and redistribution of wealth.

However, SWFs are also suspected to be the next hedge fund, while covert government agencies quietly use these funds to pursue their sovereign agenda.

Depending on the country, an SWF derives its funding from a variety of sources, including surplus reserves from revenues generated from state-owned natural resources exploitation, bank reserves, trade surpluses, foreign currency operation and government transfer payments.

The proposed Maharlika Investment Fund by House Speaker Martin Romualdez and presidential son Ilocos Norte Rep. Sandro Marcos drew public backlash after it was initially proposed to be funded by pension funds and government-controlled banks.

Under the original proposal, the MIF will have an initial asset size of P250 billion, with funding coming from the Government Service Insurance System (P125 billion), Social Security System (P50 billion), Land Bank of the Philippines (P50 billion) and the Development Bank of the Philippines (P25 billion).

However, the bill's proponents backpedaled and removed the GSIS and the SSS from the funders of the MIF. Instead, the Bangko Sentral ng Pilipinas committed to providing the initial seed funding of P35 billion, representing its earnings from its investments.

That move silenced most of the fund's critics.

Resource tax

Countries with significant revenues from natural resources invest surplus funds in SWFs to benefit their current and future population. In sovereigns as diverse as East Timor and Norway, the state invests and manages revenues from natural resources via SWFs to benefit the current and future generations.

The largest SWFs in the world in terms of fund sizes are:

China Investment Corporation ($1.35 trillion).

Norway Government Pension Fund Global ($1.14 trillion).

Abu Dhabi Investment Authority ($790M).

Kuwait Investment Authority ($750M).

GIC Private Limited ($690M).

But with the country's history of the pillage of natural resource wealth by powerful politicians and their cronies, a transparent discussion of the equitable management of resources is imperative.

Estimates placed the Philippines' metal deposits at over 21.5 billion metric tons and nonmetal mineral deposits at 19.3 billion MT. These comprise gold, nickel, copper, timber, petroleum, silver, cobalt, and salt. Indeed, the country is considered the world's second-largest nickel producer after Indonesia. Out of all of the metallic minerals produced by the Philippines in 2018, gold production made up 36.74 percent.

But Filipinos need to fully benefit from exploiting the nation's natural resources.

The Philippine Mining Act of 1995 (Republic Act 7942), signed by then-President Fidel V. Ramos, mining companies are subject to income taxes, excise taxes, VAT, documentary stamp taxes, other imposts, and customs duties. A five percent royalty tax is levied on mining firms if it is operating in areas within a mineral reservation.

Mining operations do not pay resource tax.

Natural resource revenue-sharing systems

A resource tax is levied on specified natural resources in such a manner as to adjust for income differentials arising from grade differences in various natural resources. It aims to protect state-owned natural resources and improve their reasonable development and utilization.

The design to tax natural resources exploitation is to ensure that the government, and the public, should receive a fair share of the revenues from natural resources.

A resource tax, or resource revenue -sharing system, will allow the public to benefit from the exploitation of resources. It can bring tangible benefits, respond to local claims for a share of subsoil wealth, and help mitigate conflicts between national governments and local government units.

The projected accumulation of revenues from this resource tax necessitates the government to establish an SWF to manage this fund. However, the SWF should be created with clear objectives and investment mandates that serve the public's interest and are consistent with the government's fiscal policy.