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Pass 5% uniform royalty tax on mining, DOF asks Senate.

THE Department of Finance is urging the Senate to pass the uniform royalty tax of 5 percent on mining operations in the country under the original proposal of the DOF, in line with the government's push to make the Philippine tax system simpler and fairer to all taxpayers.

Finance Assistant Secretary Ma. Teresa S. Habitan told senators before the adjournment of the congressional session last month that the DOF proposal would haul in an estimated P7.2 billion in incremental revenues to the state coffers in the initial year of its implementation. This is double the projected amount of P3.7 billion that the government will collect from the mining revenue reform bill approved by the House of Representatives in November 2018.

'In the House [of Representatives], there was a considerable discussion about how the royalty was going to be calculated and with different methodologies on that. What finally was approved by the House can be considered a compromise position. The DOF always wanted a simpler manner of computing the royalty,' Habitan said during a recent hearing on the proposed new fiscal regime for the mining industry conducted by the Senate Ways and Means Committee.

The House version lowers the current 5-percent royalty on large-scale mining inside mineral reservations to 3 percent, and imposes a royalty equivalent to 1 percent to 5 percent of profit margins for large-scale mining outside mineral reservations, and 0.1 percent of gross output for small-scale mining outside or inside mineral reservations.

The DOF's proposal is outlined under Senate Bill (SB) 1979 filed by Senate President Vicente C. Sotto III, which calls for the retention of all existing taxes and fees on the mining industry, and a royalty of 5 percent on gross output paid to the government on all mining operations, regardless of the nature of the agreement, whether large scale or small; metallic or nonmetallic minerals extraction; or located inside or outside of mineral reservations.

SB 1979 also provides for an additional government share when its basic share is less than 50 percent of the net mining revenue; thin capitalization to avoid mining contractors relying too much on debt funding; and ring-fencing in which each mining project will be treated as a separate taxable entity.

Under the DOF-endorsed SB 1979, the current 5-percent royalty rate for operations located inside mineral reservations will be retained, while for those outside mineral reservations, a phased-in rate is proposed, as follows: on the first three years upon the effectivity of the law, 3 percent; on the fourth year, 4 percent; and on the fifth year, 5 percent.

Habitan reported that in 2017, data from the Mines and Geosciences Bureau and the Bureau of Internal Revenue showed the government collected P1.1 billion in royalties and P1.9 billion in excise taxes from mining operations. The royalties were collected only from operations inside mineral reservations, with most mines in the country operating outside mineral reservations.

The existing taxes paid by mining contractors are the corporate income tax, excise tax, indigenous people's royalty, local business tax and value-added tax, among others.

To differentiate, mining operations inside mineral reservations are located in areas where the government has already made some investments and where there is some certainty on the presence of minerals, while those outside mineral reservations are areas not developed by the government and where discovery of minerals is, thus, less certain.
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Publication:Business Mirror (Makati City, Philippines)
Date:Mar 13, 2019
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