New Philippines mining tax sees 10-fold revenue increase
In July 2012 Philippine president Benigno 'Noynoy' Aquino (pictured) signed an executive order halting the issuing mining licenses while it updates the sector's outdated legal framework.
A rewrite of of the Mining Act of 1995 (RA 7942) is now ready to be tabled at the Asian nation's 16th congress and some of the details emerging about the amendments may come as a shock to foreign investors like GlencoreXstrata which is advancing the $5.9 billion Tampakan copper-gold project in the country.
The FT's beyondbrics blog reports some of the envisaged changes will drastically increase state revenues from mining:
Ramon Paje, the environment secretary, said the government wanted to impose a single excise tax rate of 10 per cent on gross sales of mineral products in lieu of the existing 2 per cent excise tax, 5 per cent royalty tax on minerals in so-called state reservations, an indigenous people’s share and local business taxes. He estimated that the proposal would increase several-fold the government’s excise tax collection on mineral products. “If we are getting 1bn pesos now, we will be getting about 10bn pesos later on,” he said.
The government will also insist on applying the tax on the gross value of each mining company’s output, which will be computed using monthly trading averages for gold, copper and other precious metals at the London Metals Exchange. “The formula will be based on prevailing prices rather than actual transaction value to avoid the complications caused by hedging and other factors,” Paje said.
Apart from the new excise regime, the Philippines also envisages windfall taxes when commodity prices are high and the current system of local governments collecting property taxes from mining firms will stay in place, subject to caps on yearly increases.
Last year's decree established a Mining Industry Coordinating Council to oversee the sector and banned mining from some 78 areas considered sensitive ecosystems, crucial to farming or tourism or unsuitable for other reasons.
After the decree and in anticipation of the new law, foreign investment in the resources sector in the Philippines plummeted.
Never that high to begin with, investment in the island nation now attracts less than $500 million worth of mining investment. The preliminary 2012 figure was down from nearly $1 billion in 2010 and $625 million in 2011 according to government data.
The archipelago is rich in copper, gold, silver and chromium and at the moment produces more than 10% of the world's nickel, but minerals make up only 8% of its exports.
Projects like Tampakan, should it eventually go ahead, could transform the industry: It is a 2.4 billion tonne deposit, containing 13.5 tonnes of copper and 15.8 million ounces of gold.
Image – World Economic Forum 2013