Chile’s sprawling copper industry has hit its limit in terms of tax burden, a senior industry executive told Reuters on Wednesday, warning lawmakers against a hike in royalties to take advantage of soaring global prices.
Left-leaning opposition lawmakers in Chile, the world’s top producer of the red metal, have called for levying higher taxes on the industry to help underwrite social programs and stimulus amid the coronavirus crisis. Those calls – including a direct tax on sales – have gained impetus in recent weeks as copper prices hit a decade-long high.
The copper industry is a mainstay of the Chilean economy.
Diego Hernández, president of Chile’s National Mining Society (Sonami), defended the existing system, which he said taxes miners’ operating margins at a rate that increases proportionately alongside rising prices.
“It brings in the same or more (than a tax on sales) and does not fundamentally affect the less competitive mines,” Hernandez told Reuters in a phone interview.
Hernandez said a recent study by Chilean Copper agency Cochilco showed that 11 of 21 mines reviewed are already suffering from prohibitively high operating costs, and that additional taxes could cause some to fold.
“We have reached a limit, at which we can still survive,” he said. But he warned that projects in the country’s current portfolio would likely fall by the wayside should taxes increase.
Hernandez told Reuters the legislation was also unconstitutional. Opposition lawmakers have proposed a constitutional reform to pave the way for the bill’s passage. Such changes, however, require a large majority.
Lawmakers have proposed changes to Chile’s mining tax scheme several times since the current regime was established in 2011, but they say this time is different.
“More than 3 million Chileans have no savings in their pension plans,” said lawmaker Catalina Perez, who sponsored the constitutional reform to facilitate the tax hike on copper sales. “The costs of the crisis (must be paid) by those who profit from what is ours.”
(By Fabian Cambero and Dave Sherwood; Editing by Matthew Lewis)