Mining firms bat for single tax regime to boost competitiveness

MANILA, Philippines - The local mining sector is in dire need of reforms, particularly on taxation rules, to make it more attractive to foreign investors, industry officials said yesterday.

The Chamber of Mines of the Philippines (COMP) has outlined its recommendations, highlighting the need for a single tax regime, to make the country’s mining sector more globally competitive.

“The regime here is very complex in terms of the number of different taxes and royalties that the miner and government need to administer,” Justin Hiller, executive vice-president of Sagittarius Mines Inc. (SMI), said during the Mining Philippines 2013 Conference.

But a single tax regime will “encourage investments in the Philippine mineral resource industry and enabling the country to realize its resource potential,” he said. SMI is the company behind the $5.9-billion Tampakan copper and gold mine in South Cotabato.

In its recommendation, COMP said the single tax regime should be able to achieve an equitable share of proceeds between the government and investors.

Hiller said the rules should also be streamlined “enabling the government to collect revenues in an efficient and transparent manner.”

There are currently seven taxes which include excise tax, royalties, real property taxes and corporate income tax, imposed on miners operating locally, way above the three types of taxes in other jurisdictions.

The Mining Industry Coordinating Council is studying a simplified taxation rule. For one, there is a proposal that the government should obtain a 10-percent share from gross production value.

Hiller said the government and the industry group are sharing knowledge on how to solve the taxation issues.

In a study by Canadian think tank Fraser Institute, the Philippines ranked 12th out of 96 jurisdictions in terms of mineral potential.

However, the local mining sector faces an uphill climb due to numerous risks that makes it uncompetitive, Hiller said.

He said the Philippines placed 88th in terms of the level of policy risk and 80th in terms of policy environment.

Hence, fund flows into the Philippines continue to lag behind other mineralized countries like South Africa, United States, Peru, Russia, Brazil, Chile, Canada and Australia.

“We can see that the Philippines is not attracting as it should based on its mineral potential,” Hiller said.

COMP earlier warned that the government’s target of hitting $16 billion of investments in the minerals industry from 2004 to 2016 will not be met because of various issues like regulatory risks and host communities’ opposition on mining.

Last year, investments in priority mining ventures sank to $719.7 million from $1.15 billion in 2011.

Aside from finalizing changes, the reforms should be in place as soon as possible to allow miners to take advantage of existing opportunities.

“The government must move fast. Since the issuance of Executive Order (EO) 79 in 2012, the Philippine mining industry has been in a virtual standstill,” said former mines bureau chief Horacio Ramos.

“I hope we don’t see the time when we have the best mining reforms and policies yet no industry to speak of,” Ramos said. EO 79 called for the creation of a new revenue sharing agreement between miners and the government.

Ramos said there should be no increase in taxes but incentives like tax perks in the first few years of operations can be removed.

Aside from the fiscal regime, the mining industry is also challenged by the trend of low grade of ores, depressed prices and lack of qualified personnel, said Allan Trench, managing consultant of consulting firm CRU Group.