House mining tax bill cuts revenues by 15 billion

The bigger revenues that the government was hoping to get from the mining sector was reduced by around 15 billion from 127 billion to 122 billion in the recently approved House Bill (HB) 8400, which should pave the way for a new fiscal regime in the highly scrutinized minerals sector.

The House of Representatives two weeks ago passed on third and final reading HB 8400, which seeks to "rationalize and institute a single fiscal regime applicable to all mineral agreements."

From the original proposal of the Department of Finance (DOF), which imposes a 5 percent royalty on all mining firms in and out of mineral reservations, HB 8400 would now only mandate miners outside of mineral reservations to pay to the government a margin-based royalty on income from mining operations.

DOF Fiscal Policy and Plan-

ning Director IV Elsa Agustin said that with HB 8400, the "expectation of DOF [in terms of revenues] has been reduced."

"Based on the data for 2017, we were able to get estimates on how much we are getting on the existing regime, which is around 119.71 billion, including taxes. Under the DOF proposal, which imposes 5 percent royalty, we will get 126.8 billion and under the approved house bill, it is around 122 billion," Agustin said.

Based on the new computation made by the DOF, the total incremental revenues, including reduction to Corporate Income Tax (CIT), now stands at 13.73 billion annually. In the original proposal of the agency, the government would have gained about

18.19 billion. In terms of mining royalty, the government will now only earn 12.57 billion instead of 14.59 billion in DOF's original proposal. In the existing regime, earnings from royalty only stands at 11.13 billion.

Under HB 400, large-scale metallic and non-metallic mining operations located within mining reservation areas shall be imposed a royalty tax equivalent up to 3 percent of the gross output of the minerals, exclusive of all other taxes.

Mining contractors of small-scale metallic and non-metallic mining within or outside mineral reservations shall pay to the government a royalty equivalent to 1/10 of one percent of gross output.

The royalty rates shall be: one percent to 10 percent margin, one percent royalty; above 10 percent to 20 percent margin, 1.5 percent royalty; above 20 percent to 30 percent margin, 2 percent royalty; above 30 percent to 40 percent margin, 2.5 percent royalty; above 40 percent to 50 percent margin, 3 percent royalty; above 50 percent to 60 percent margin, 3.5 percent royalty; above 60 percent to 70 percent margin, 4 percent royalty; and 70 percent margin, 5 percent royalty.

“Margin” is referred in the bill as “the ratio of income from mining operations before corporate income tax to gross output.”

Chamber of Mines of the Philippines (COMP) Executive Director Ronald Recidoro said the tax rates under HB 8400 is high but it "is something that the industry can live with."

To recall, COMP, composed of the country's largest mining companies, was opposing the imposition of 5 percent royalty on all mining companies.

"In the original Suansing Bill, government gets a bigger share in the cash flow of the project than the miner and any investor who will see that the government gets a larger share in the project, it will definitely not be interested in the project," Recidoro said.

In the upper chamber, the DOF proposal on new mining fiscal regime was filed as Senate Bill (SB) 1979 by Senate President Vicente C. Sotto III.

Finance Assistant Secretary Maria Teresa Habitan said under SB 1979, the DOF was still hoping to get higher revenues based on the original proposal of the agency.