A Heavy tax burden is limiting the mining sector’s contribution to the economy, an industry organisation claimed last week amid government proposals for additional levies.
“Comparing with the OECD (Organisation for Economic Cooperation and Development), Africa and Latin America, the Philippines has the highest total tax rate at 43.7 percent,” a Chamber of Mines presentation to the Department of Environment and Natural Resources stated.
“For firms that are less profitable, the rate could be much higher,” it added.
Combined, levies such as corporate income tax, custom duties, fees for registration and royalties to indigenous peoples comprise 43.7 percent of the total income of mining firms in the Philippines, the Chamber of Mines said, higher than levels seen in the OECD (32.6 percent), Africa (34.4 percent) and Latin America (39.5 percent).
It claimed the current tax regime had made mining firms think twice about investing in the country. It cited studies by a think tank, the Fraser Institute, ranking the Philippines 59th out of 79 economies in terms of taxation and 66th in terms of policy, offsetting mineral and geological potential advantages.
As a result, mining firms have contributed little to the economy, the industry group said. Mining revenues were said to comprise only 3.92 percent of total exports, markedly lower than in Vietnam (11 percent), India (16 percent), Indonesia (19 percent), Brazil (20 percent), South Africa (35 percent), Chile (48 percent) and Peru (60 percent).
Mining also contributes only 2 percent to Philippine gross domestic product, it claimed, behind India (2.62 percent), Peru (4.7 percent), South Africa (6.5 percent), Brazil (8.5 percent), Vietnam (10 percent), Indonesia (10.8 percent) and Chile (15 percent).
The Environment and Finance departments are currently studying proposals to increase mining taxes. One involves declaring all mine sites as mineral reservations, which would allow the government to collect a 5 percent royalty atop the 2 percent excise tax collected from gross sales.
Other proposals include a carbon tax on the pollution emitted by mining firms and a mineral resource rent tax on profits generated from the extraction of non-renewable resources.
The Chamber of Mines is still studying the impact of the carbon and mineral resource rent tax, but it remained firmly against an expansion of the excise tax. In addition to the Finance department proposals, a pending measure at the House of Representatives seeks to increase the excise tax on mining to 7 percent from 2 percent.
“We remain competitive in terms of royalty and taxes. We will definitely be uncompetitive if the proposal to levy an additional 5 percent excise tax is levied,” the presentation stated. Other countries impose excise tax and royalties ranging from 2-14 percent, it noted.
The Finance department claims that higher taxes would allow the government to earn more revenues from minerals that, according to the law, are owned by the state. The added revenues, officials said, would also help mitigate the impact of mining on the environment and the local communities.
The Chamber of Mines argued that the industry already gave P1.38 billion in revenues to the government, most of the amoung coming from large-scale firms. It claimed that small-scale miners and illegal outfits, on the other hand, accounted for up to P2.5 billion in lost tax revenues and the government would do well to go after this sector.
“The tax leakage which should be the concern of [the Bureau of Internal Revenue and the Department of Finance] is not from large-scale mining but from small-scale and non-metallic mining,” it said in the presentation.
“But since large-scale mining companies are in the forefront of policy discussions with the government, they are made to answer for lapses in the other subsectors of the mining industry…”
It said the government should retain the current level of mining taxes as this would provide sustained revenues. Aspiring for a rapid increase in revenues will be futile if miners relocate to other countries, it added.
“The government should let the industry prosper and grow because that would mean more revenues, more direct and indirect jobs, more income and increased purchasing power and less poverty in the countryside in view of its multiplier effects,” the Chamber of Mines said.