IMF study shows Phl mining fiscal regime not globally competitive

MANILA, Philippines - A study by the International Monetary Fund (IMF) undertaken last year shows that the existing tax structure applied in the Philippine mining industry for Financial and Technical Assistance Agreements (FTAAs) “is not competitive internationally.”

Using the internationally accepted Average Effective Tax Rate (AETR) formula, the Philippine government’s share under the current mining fiscal regime is approximately 60 percent with the remaining 40 percent going to the mining contractor.

The AETR is simply the percentage of the value of a mining project that the government receives in the form of taxes and royalties over the life of the mine.

Comparing AETRs across the globe, the IMF study shows that the Philippine government’s share in the value of a mining project under the current fiscal regime is approximately 60 percent while Chile, Peru, Australia, Canada, and the United States, acknowledged as global mining industry leaders, receive government shares of approximately 40 percent to 45 percent. The IMF considers the current FTAA regime to be a “tough regime for investors compared to fiscal regimes of other countries.”

Further, applying the AETR formula to the FTAA fiscal regime [under low metal prices] results in the Philippine government receiving 100-percent share of the mining project’s value.

“The AETR formula shows that the Philippine government is receiving much, much more than the two-percent share in mining revenues commonly touted,” said Ron Recidoro, Chamber of Mines of the Philippines (COMP) Vice President for Legal and Policy.

Recidoro said that with the present mining fiscal regime, “the government takes a significant part of its share from the gross proceeds of mineral sales, regardless of whether the contractor makes a net profit or not”.

“This 60-percent share goes to the government; with the contractor assuming all exploration, development, production financial costs and risks while receiving only 40 percent of the project’s value. The end result is that the government share is up to 50 percent higher than some of the major developed mining nations”, Recidoro said.

With the release if its study, the IMF said that “the market test for the Philippine fiscal regime is – if it can attract investment for its mining sector”.

Recidoro said that “apart from the two-percent excise tax, mining companies pay corporate income tax, additional government share, customs duties on importation, value-added tax (VAT), capital gains tax, documentary stamp tax, withholding tax on dividends to shareholders and other transactions, real property tax local business taxes and fees, additional royalty for projects located in mineral reservations and additional royalty for Indigenous Peoples (IPs) for projects within ancestral domain areas.