DOF studies IMF mining tax proposal

MANILA, Philippines - The Department of Finance (DOF) said it would study the proposal of the International Monetary Fund (IMF) seeking the adoption of a seven percent single levy for all mining operations in the Philippines.

Finance Secretary Cesar Purisima said the department would be looking into the Washington-based lender’s proposal for the adoption of a seven percent single mining tax – combining excise and royalty taxes as well as mineral production sharing agreements (MPSA) where the government only collects two percent excise taxes.

“We are currently studying the IMF report’s specific recommendations and this will serve as an important input as we work with Congress and the various stakeholders in proposing amendments to existing laws defining the fiscal regime on all mining activities, whether large or small-scale,” Purisima said yesterday.

The IMF recommended in a study titled “Reform of Fiscal Regimes for Mining and Petroleum” the repeal of tax incentives for mining and that all domestic tax rules governing mining should be consolidated in the National Internal Revenue Code (NIRC).

At present, the Mining Act of 1995 provides the grant of various fiscal incentives offered by the Board of Investments (BOI).

Purisima said the abolition of tax perks is already covered in the proposed Fiscal Incentives Rationalization bill pending which the Finance department is pushing in Congress.

The IMF also recommended a 10 percent “cash-flow surcharge” to be determined by adding the mining company’s regular taxable income plus interest and other financing charges. However, the capital expenditures and corporate income tax would be deducted from the surcharge base.

According to the IMF study, while mining’s contribution to the economy in 2009 and 2010, were 1.3 percent and 1.6 percent respectively, total mining taxes as a share of total tax revenues of the National Government was only 1.04 percent and 0.98 percent in 2009 and 2010.

Based on this premise, the IMF favored large mining operations over the smaller ones.

“The mining sector comprised mostly of small-scale mines that do not pay a lot of tax, older mines that are in their twilight years, and a few new mines that are enjoying tax holidays,” the IMF said.

The IMF proposed that the Philippines rationalize the multiple mining regimes into a single regime so that there should only be one regime for future large mining projects.

Currently, there exist three possible fiscal regimes for large mines: MPSA outside mineral reservations, MPSA within mineral reservations, and financial and technical assistance agreements (FTAAs).

Last month, President Benigno Aquino III issued Executive Order 79, which suspended the grant of new mineral agreements until a legislation improving revenue sharing schemes from mining operations shall have taken effect.