NEW FISCAL REGIME FOR THE MINING INDUSTRY
In August 2022, the House of Representatives’ Committee on Ways and Means approved a bill proposing a new fiscal regime for the Philippine mining industry, following the previous proposal of the Department of Finance (DOF) and which will cover existing and prospective large-scale metallic mine, regardless of location.
At present, mining companies are liable for corporate income tax, excise tax, royalty, local business tax, real property tax, and royalties to indigenous communities, which effectively add up to 38% of a mining company’s income. The bill seeks to increase this effective rate to up to 51% through additional royalties, windfall profits tax, export tax, and ring fencing.
Before it is enacted into law, the Committee-approved bill will undergo two more readings in the House of Representatives, three readings in the Senate, further approval of the Bicameral Conference Committee, and the final approval of the President.
The bill seeks to impose royalty payments on mining companies operating outside mineral reservations. At present, only mining companies operating inside mineral reservations are liable for the 5% royalty based on gross output.
WINDFALL PROFIT TAX
The bill also seeks to impose a windfall profit tax, which would be an additional imposition on a mining company if its total tax payments fail to meet the specified minimum government share from mining contracts. Under the bill, the minimum government share from all mining contracts would be 60% of net mining revenues.
At present, windfall profit tax is imposed only on mining companies operating under Financial and Technical Assistance Agreements (FTAAs) and the minimum government share for mining companies with FTAAs is 50% of net mining revenue. On the other hand, mining companies operating under Mineral Production Sharing Agreements (MPSAs) are not subject to windfall profit tax.
In addition, the bill seeks to impose a 10% export tax (based on the market value of mineral ore exports) to encourage domestic processing of mineral products.
Lastly, under the bill, a mining company will be treated as a separate taxpayer with respect to each of its mining contracts. Also known as ring fencing, this rule seeks to increase the tax base by ensuring that losses from other mining projects will not be deducted from the more profitable ones.
LIFTING OF MORATORIUM ON MINERAL AGREEMENTS
On April 14, 2021, then President Rodrigo Duterte issued Executive Order (EO) No. 130 (EO No. 130), which amends Section 4 of EO No. 79, s. 2012 (EO No. 79), lifting the moratorium on the grant of new mineral agreements. Section 4 of EO 79 had imposed a moratorium on the granting of new mineral agreements “until a legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect.”
The whereas clauses of EO No. 130 noted that Republic Act No. 10963 (the TRAIN Act) has doubled the rate of excise tax on minerals, mineral products, and quarry resources from 2% to 4%, the country has tapped less than 5% of its mineral resources, and that the mining industry can support various government projects. EO No. 130 also directed the Department of Environment and Natural Resources (DENR) and the DOF to “undertake appropriate measures to rationalize existing revenue sharing schemes and mechanisms”
In addition, EO No. 130 provides for the strict implementation of mines safety and environmental policies by the DENR, directing the DENR to “ensure strict implementation of and compliance with the recommended measures of the Mining Industry Coordinating Council involving all mining operations, including other pertinent laws, rules, and regulations, and the terms and conditions of the mineral agreements.”
FUTURE OF MINING IN THE PHILIPPINES
The present government is looking to the mining industry to aid in the country’s economic recovery. Finance Secretary Benjamin Diokno has stated that the Marcos administration seeks to create an enabling environment for the growth of the mining industry while adhering to responsible and sustainable mining practices. In the first Cabinet meeting of President Marcos, the fiscal framework presented by the DOF included mining as an industry to be given particular attention by the administration. Other industries included were agriculture and tourism.
Recently, or on August 3, 2022, Philex Mining Corporation listed 842 million of its common shares in the Philippine Stock Exchange. With Philex undertaking the biggest copper-gold mine in the country, it is expected that more jobs will be created, local economies will be reinvigorated, and additional revenues (approximately PhP8.5 Billion) will benefit the government. The Mines and Geosciences Bureau of the DENR predicts that the country could have additional 190 mining projects in the next four years, with 12 new mines beginning operations this year, and that the workers in the mining sector would reach 600,000 by 2027 from the current number of 215,000. It is also expected that the contribution of the mining sector to the GDP would rise from 0.7% to 5% by 2027.
However, while these recent events have shown the likely growth of the mining industry in the Philippines, aided and encouraged by the government, further policy pronouncements are still needed to help maximize its potential and attract both foreign and domestic investment.
SyCipLaw’s Special Projects Department undertakes the firm’s project and transactional work, which constitutes the firm’s traditional focus and largest practice area. This includes M&A, privatization, power and energy, mining and natural resources, environmental law, infrastructure, construction, real estate and property development, telecommunications, aviation, shipping, and transportation.
We continue to advise on nationality laws and regulatory and industry issues, including in mining, telecommunications, gaming, and pharmaceuticals, and assist in the construction and development of industrial plants, light industry parks, office buildings and residential condominiums, tollways, and light-rail systems. Our partners have been involved in the purchase, lease, and chartering of aircraft and vessels and many aspects of international trade, including importation and countertrade. Several of our partners act as advisers to boards of major companies, including listed corporations, and provide counsel on a wide range of industry and business issues, including, in the case of family-owned enterprises, wealth conservation and business succession.
For further information, please contact:
Hector M. de Leon, Jr.,Partner SyCip Salazar Hernandez & Gatmaitan