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Mining Taxation: Between
Reason and Extortion
Bienvenido “Nonoy” Oplas Jr.
Presentation at the forum, “enlight EM up”
Sponsored by the UP Mining Engineering Society (UP MINERS)
UPSE Auditorium, UP Diliman, QC, 18 september 2014
OUTLINE
I. Basic Stats, PH Mining
II. Some Taxation Theory
III. Mining Tax: Rational vs
Irrational
IV.Conclusions
Source 2009 2010 2011 2012 2013 2014 Q1
Gross Production Value (P Bill.) 106.1 145.3 163.2 144.6 157.1 21.98
Large-scale metallic mining MGB 42.8 69.1 88.0 97.8 99.0 21.94
Small scale gold mining BSP 36.8 42.9 34.1 1.2 0.3 0.04
Non-metallic mining MGB 26.5 33.3 41.1 45.6 57.8 na
Taxes, Fees, Royalties (P Bill.) 12,696 13.365 22.230 19.942 21.480 1.415
Collections by DENR-MGB 0.396 0.801 1.381 1.647 1.517 1.410
Excise Tax collections by BIR 0.718 1.306 6.986 2.206 2.494 na
Taxes collected by NGAs 10.579 10.188 12.886 14.322 16.237 na
Collections by LGUs 1.002 1.071 1.179 1.767 1.232 0.005
Mining investment fr. Revitalization
Prog. Under EO 270 ($ Million)
MGB 719.5 1,053 1,148 812.5 1,311.4 na
Gross Value Added, Mining (P Bill) NSCB 65.8 88.2 96.9 79.5 77.8 22.4
Mining GVA share to GDP (%) 0.8 1.0 1.0 0.7 0.7 0.8
Exports of Mineral Prods. ($ Mill.) BSP 1,470 1,929 2,840 2,337 3,417 664
Mineral X / Total X (%) 3.9 3.8 6.0 4.5 6.3 4.6
Exports of Non-Metallic ($ Mill.) BSP 156 162 177 145 206 77
Non Metallic X / Total X (%) 0.4 0.3 0.4 0.3 0.4 0.5
Employment in Mining & Quarry. DOLE 169,000 197,000 211,000 250,000 250,000 222,000
Mining Empl. / Total Empl. (%) 0.5 0.5 0.6 0.7 0.7 0.6
Source: Mines and Geosciences Bureau (MGB), DENR,
http://www.mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pdf
I. Basic Statistics, Philippine Mining Industry
Mining Performance, in $
Indicator 2008 2009 2010 2011 2012
Gross
Production
Value
$ 1.958 B $ 2.227 B $ 3.221 B $ 3.768 B $ 3.358 B*
GDP
Contribution
$ 1.205 B $ 1.381 B $ 1.955 B $ 2.237 B $ 1.724 B
0.7 % 0.8 % 1.0 % 1.0 % 0.7 %
Export Share $ 2.498 B $ 1.470 B $ 1.929 B $ 2.840 B $ 1.588 B*
5.2 % 3.9 % 3.8 % 6.0 % 4.0 %
Employment 158,000 169,000 197,000 211,000 252,000
0.5 % 0.5 % 0.5 % 0.6 % 0.7 %
Taxes, Fees
& Royalties
from Mining
$ 172.87 M $ 259.87 M $ 296.28 M $ 509.81 M $485 M
The above numbers show:
1. The contribution of mining in PH economy looks small. Just 1%
of GDP, only 0.6% of total employment, mineral exports just 5%
of total exports.
Yes, because mining’s “multiplier effect” is not counted.
Almost all industrial (manufacturing, construction) and services
(transportation, telecom, IT, real estate, etc.) activities use mining
products . No mineral products means almost no industrial
production, very little services sectors. (Ex: Public transpo will be
horses and carabaos, not trains, buses or jeepneys)
Analogy: GVA of poultry and pork/meat is small, maybe around
2% of GDP. But without chicken and pork, there will be little or no
activities in many other sectors -- restaurants, carinderias, litson
manok/liempo stalls, chicken cubes/fillet, other manufactured and
processed food.
The above numbers show:
2. Taxes, fees, royalties by mining looks small, only P20+ billion
out of around P1.5 trillion tax collections or just 1 percent of
total tax collections.
Again, because mining’s “multiplier effect” is not counted.
Mining output enables more agri, industrial and services
sectors to produce more, and government collects more.
Almost all of the taxes and fees mentioned are from large-scale
mining, very little from small scale mining.
Nickel Performance, Global Ranking
NICKEL PRODUCTION (000 MT)
COUNTRY Rank 2012 Rank 2011 RESERVES
Philippines 1 330,000 2 270,000 1,100,000
Indonesia 2 320,000 1 290,000 3,900,000
Russia 3 270,000 3 267,000 6,100,000
Australia 4 230,000 5 215,000 20,000,000
Canada 5 220,000 4 220,000 3,300,000
Brazil 6 140,000 7 109,000 7,500,000
China 7 91,000 8 89,800 3,000,000
Colombia 8 80,000 9 76,000 1,100,000
Cuba 9 72,000 10 71,000 5,500,000
South Africa 10 42,000 3,700,000
New Caledonia 6 131,000 12,000,000
Other Countries 332,000 200,600 7,667,100
TOTAL 2,127,000 1,939,400 74,867,100
Source: Mines and Geosciences Bureau (MGB)
II. Some Taxation Theory
• Deadweight loss arises bec. of monopolistic pricing incl. govt taxation,
externalities, price controls.
• At higher tax, people will either produce less even if a product is publicly
needed, or they will underdeclare actual output and pay lower taxes.
• Example: if taxes (corporate income, excise, royalty, LGUs’, …) are equiv. to
6% of gross mining revenues, mining output is 12 million tons.
• Raising the tax to 10% will result in that shaded area, Potential higher
revenues for govt but lower output to society. Players willing to supply only 8 M
tons. And govt will collect less.
Arthur Laffer (and JM Keynes): the higher the tax rate, the
lower the tax revenue/collection
At tax rates approach 100%, private enterprises will either stop working, or they work but
understate output; tax assessors/collectors allow it in exch. for personal and financial gains.
“But Mining causes lots of deforestation, soil erosion, river
pollution… It deserves to be taxed super high” – Anti mining lobby
B. LOCAL TAXES/FEES
• Business tax
• Real property tax
• Registration fees
• Occupation fees
• Community tax
• Other local taxes
C. OTHER PAYMENTS
• Special allowance as defined by
the Mining Act
• Royalties to indigenous cultural
communities
• Various documents/permits
required by MGB, LGUs
III. Mining Taxation: Rational vs Irrational
Other costs: SDMP & CSR
A. NATIONAL TAXES / FEES
* Corporate Income tax
* Excise tax
* Value-added tax
* Royalties (in mineral
reservations)
* Capital Gains tax
* Tax on interest payment to
foreign loan
* Tax on foreign stockholders
dividends
* Documentary stamp tax
* Vehicle registration tax
MPSA/FTAA
The difference between the cumulative present value of net
mining revenue and cumulative present value of total govt
share to achieve a 50%-50% sharing
Net Mining Revenue = Gross Output – Deductible Expenses
Gross Output = actual market value of minerals or mineral
products from its mining area as defined by the National
Internal Revenue Code
Deductible Expenses = Allowable expenditures incurred by the
Contractor directly, reasonably and necessarily related to the
mining operations as defined in Section 3 of DAO 99-56
PLUS: Additional Government Share
(Net Mining Revenue-Based)
Illustration: Breakdown of Tax Payment in 2010
source: Dr. Artemio Disini, presentation at the Philippine Economic Society
(PES) Conference, November 27, 2012, PICC, Manila.
The above table shows that:
* Actual contribution of large scale metallic mining (LSMM) to taxes
not just 9% but 13% of gross value production, as small scale gold
mining (SSGM) sub-sector does not pay any national tax, only small
local taxes and fees.
* After deducting production cost, 60% for metallic and 50% for non-
metallic, total taxes, fees and royalties paid to the government of
P11.9 billion in 2010 comprised 43% of LSMM’s net revenue.
* Government share of nearly P12 billion in 2010 alone, constituting
nearly one-half of LSMMs’ net revenue is big. It is hard to find other
sectors that are taxed this much.
* The statement that large scale mining is “not taxed enough” is not
valid. The phrase “not taxed enough” applies to small scale mining.
2010 2011
LSMM NMM Total LSMM NMM Total
Gross Revenue 69.1 33.3 102.4 88.0 41.1 129.1
Less Operating Cost
(60% LSMM, 50% NMM)
41.5 16.6 58.1 52.8 20.5 73.3
Net Revenue 27.6 16.7 44.3 35.2 20.6 55.8
Taxes and Fees Paid * 11.9 1.5 13.4 22.0
Taxes/Net Revenue,
Percent
43.1 9.0 30.2 39.4
Taxes and Fees Paid by LSMM and NMM, 2010 and 2011, P Bill.
* 2010 tax breakdown source: Disini. Presentation at PES Conf., 2012
No breakdown of tax payment among LSMM, NMM and SSM at the MGB data.
At 39.4% combined payment by LSMM and NMM in 2011, and seeing their
proportional payment in 2010, it is safe to assume that LSMM paid about 50 of
their net revenues to the government.
* On top of taxes and fees paid, LSMM also required by RA 7942,
Chapter X, and DENR Administrative Order (DAO) 2010-21 (IRR
of RA 7942) LSMM to have Social Development and Management
Program (SDMP) for the communities where they are operating. In
2010 alone, this was more than half billion pesos from members of
the Chamber of Mines of the Philippines (COMP).
* Since SDMP (school, hospital, livelihood trainings, tractors, etc.)
is not counted as part of operating expenses, then it can be
considered as additional tax and fee that goes direct to the people
in the communities, not to the BIR, Congress and LGUs.
Monsod computation Realistic nos.
Potential metallic
mineral value
P36.0 trillion P36.0 trilion
Gross taxable profit P14.4 trillion P14.4 trillion
Government share (a) Excise tax: 2%
(b) Malampaya: 60%
(c) Average taxes
+ fees payment:
46 %
Projected tax collection (a) P288 billion
(she wrote P720 B)
(b) P8.64 trillion
(c) P6.62 trillion
“Underpayment” to
government
(b) – (a) = P8.35 trillion
(she wrote P7.92 trillion)
(b) – (c) = P2.02
trillion
―Using the Malampaya formula, the share of the government/Filipino people
would come out to P8.64 trillion. Using the 2-percent formula of the Philippine
Mining Act, our share is P720 billion—or eight hundredths of one percent (0.08
percent) of what we would have gotten using Malampaya. In effect, if all those
mineral resources had been extracted, under RA 7942, the loss to the Filipino
people would be P7.92 trillion.‖ – Winnie Monsod (PDI, August 9, 2013)
Wrong. (1) Based on taxes and fees paid by LSMM in 2010 (43%) and 2011
(about 50%), the tax multiplier to be used should be around 46%, not 2%
(2) Assuming an amendment to RA 7942 in mining taxation, a move from
excise tax of 2% ++ existing taxes and fees to a Malampaya revenue
sharing (government 60%, private 40%), potential difference in revenue
collection will only be around P2.02 trillion and not P8.35 or P7.92 trillion.
And if SDMP spending is included, difference will narrow down to perhaps
only P1.8 trillion.
(3), “adverse environmental effects of mining” applies mainly to practices by
SSM (Mt. Diwalwal for instance) and not by LSMM. Prof. Monsod was silent
about SSM in her article.
Source: Roberto Mayorga, Chile Ambassador to the Philippines.
Presentation at Mining Conference, Manila, September 14, 2011.
Chile,
Mining
Taxation and
Regulations
Foreign investments and mining taxation policies, Chile vs
PH, the latter is far out more complicated, more extortionary.
Source: Roberto Mayorga,, 2011.
• Compared with: PH’s $2-3 B a year mineral exports, only around 5% of total X
• And PH’s 1% share of GDP, 1% share of tax revenues,.
• Positive results in Chile, up to $67 B of new mining investments by 2017.
• PH only $12.3 B by 2017. The single biggest proj. in the PH, Tampakan
mine by Sagitarrius Mining Inc. (SMI) still uncertain due to LGU
opposition and disapproval of the project.
Projected mining investments, Chile vs. PH.
High-Potential
Potential High Tax Base: Of the country’s total land area of
30 million hectares…
Of which only 2%
currently covered by
LSMM contracts/permits
About 30% or 9 million
hectares are considered
high mining potential
With estimated inventory of: * 8.03 B tons COPPER; * 480.26 M tons IRON;
* 4.91 Bi tons GOLD; * 39.66 Mi tons CHROMITE;
* 0.81 Bi tons NICKEL; * 433.88 Mi tons ALUMINUM.
Worth some $1 trillion
Source:
Recidoro,
COMP
Projections for New Mining Projects, as of 2012
2011* 2012 2013 2014 2015 2016 2017 2018
Investments
(Million $) 730 1,369 2,072 3,352 4,045 2,892 812
Revenues
(Million $) 3,768 3,768 4,878 5,167 7,959 10,675 13,114 14,036
Taxes**
(Million $) 400 400 555 596 987 1,367 1,707 1,837
Total investments (2011 to 2018): $15 billion
Total Annual Revenue: $3.8b in 2011, ramps up to $14b in 2018
Taxes Collected: $400m in 2011, increases to $1.8B in 2018
Mining share in GDP: 1.7% in 2011, increases to 5-6% in 2018
*Based on MGB Sep 2012 Figures
**Estimated figures is without ITH
source: Dr. Artemio Disini, presentation at the Philippine Economic Society
(PES) Conference, November 27, 2012, PICC; basic data from MGB Sept 2012
Anti-mining Claims:
(1) “From 2000 to 2009, ave. contribution of mining only 0.91 % of GDP,
2.5 % of total investments, and only 0.38 % of total employment.”
Philippine GDP by industrial origin at constant prices, % distribution
Source: computed from NSCB table 1,
http://www.nscb.gov.ph/beyondthenumbers/2013/04122013_jrga_agri.asp#tab1
True that share of raw mining production/GDP ratio is small.
BUT check that if the multiplier effect of mining is included, its contribution to
agri, industrial and services sectors is huge.
(2) “Better develop agriculture than mining.”
Should be no conflict between the two. But labor productivity and
income per worker in LSMM larger than those in agriculture in
general. Thus, the sector already provides social and economic
services to the poor more than in agriculture in general
Table 4. Some comparison between Agriculture and Mining
Source: Alonzo, Emmanuel, Issues Affecting the Mining Industry, Senate
STSR Taxbits, July-August 2012.
34.5%
40.8%
52.6%
54.7%
58.3%
58.8%
79.3%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Papua New Guinea
Chile
South Africa
Peru
Canada
Australia
MICC Tax Structure
Source: Halcon, Nelia, COMP’s EVP. “The MICC Proposed Fiscal Regime for Mining: An
Assessment”, July 2014
Computed Average Effective Tax Rate (AETR *), Selected Countries
* AETR is the ratio of the Net Present Value (NPV) of total tax collections over the
projected life of the mine to the NPV of the total project pre-tax net cash flows (discount
rate of 10%).
• People benefit from mining even if taxes are zero. From spoon
and fork to nails and hammer, cellphones and laptops, cars and
airplanes, they all came from mining.
• “No to mining whatsoever” is a non-option. “Tax mining as
prohibitively as possible” is next to non-option. It will drive away
the legal, large, responsible mining companies. Small-scale
mining that are hardly taxed and regulated will flourish.
• Chile’s simple investments and low mining tax policies should
be considered by the PH government.
• A high AETR of 79% as proposed by the MICC will worsen the
tax environment to an outright extortionary system.
• Any tax hike proposal should compensate it with streamlining
and abolition of other taxes and charges.
IV. Concluding Notes