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Philippine panel weighs options to increase mining revenue

Source: Thomson Reuters Foundation - Mon, 3 Dec 2012 10:03 GMT
Author: Reuters
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MANILA, Dec 3 (Reuters) - The Philippines is studying ways to increase its share of mining revenue by pegging tax at a proportion of either gross margin or gross revenue, as it pushes through crucial industry reforms, a panel drafting the tax legislation said on Monday.

   The government now gets a royalty of only 5 percent of gross revenue collected from 11 of 35 mines operating within so-called mineral reservations sites across the Philippine archipelago.

   The government has halted new mining projects until Congress approves the mining tax reform, but the new law may have to wait until after mid-term elections in May 2013 as it falls outside lawmakers' priorities.  

   The freeze in new mine deals and conflicting regulations are strangling development of untapped mineral resources in the Philippines estimated to be worth $850 billion.

   The Mining Industry Coordinating Council (MICC), chaired by Finance Secretary Cesar Purisima and Environment and Natural Resources Secretary Ramon Paje, has yet to set the tax rate, which it said would be finalised after consultation with industry.

   "In both cases, the government would use international benchmarks for metal prices available on the London Metals Exchange as well as for internationally accepted cost for mineral ore production," the MICC said in a statement.

   It is unclear how much additional revenue each option will bring the government, although both strategies will boost its share of mining revenues. In each case, income tax is to be deducted after computing the government's share.



   The new legislation will use a simplified formula to fix the sharing arrangement.

   That will eventually let the Philippines join the Extractive Industries Transparency Initiative (EITI), a code of global practice to promote revenue transparency through standardized disclosures of mining fees and taxes, the MICC said.

   Industry body the Chamber of Mines of the Philippines backs  entry into the EITI as a way to stamp out graft and corruption and clarify the issuance of mining permits and tax payments.

   Philippine President Benigno Aquino has said mining brings the government an excise tax of just 2 percent.

   In 2010, Manila's excise tax revenue was just less than 1 percent of the mining sector's gross output, valued at 145.3 billion pesos ($3.5 billion). It also collected about 12 billion pesos in other taxes and fees, or 8 percent of total production.

   "The new scheme will strive to strike a balance between raising government revenue and keeping a fiscal regime that is competitive with other developing countries," the MICC said.

   In other mining-intensive economies such as Australia and Chile, the tax can range as high as 15 percent, the Chamber of Mines said.

(Reporting by Erik dela Cruz; Editing by Clarence Fernandez)

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