New Fiscal Regime for the Mining Industry
In August 2022, the House of Representatives’ Committee on Ways and Means approved a bill proposing a new fiscal regime for the Philippine mining industry, following the previous proposal of the Department of Finance (DOF)
and which will cover existing and prospective large-scale metallic mine, regardless of location.
At present, mining companies are liable for corporate income tax, excise tax, royalty, local business tax, real property tax, and royalties to indigenous communities, which effectively add up to 38% of a mining company’s income. The bill seeks to increase this effective rate to up to 51% through additional royalties, windfall profits tax, export tax, and ring fencing.
Before it is enacted into law, the Committee-approved bill will undergo two more readings in the House of Representatives, three readings in the Senate, further approval of the Bicameral Conference Committee, and the final approval of the President.
The bill seeks to impose royalty payments on mining companies operating outside mineral reservations. At present, only mining companies operating inside mineral reservations are liable for the 5% royalty based on gross output.
WINDFALL PROFIT TAX
The bill also seeks to impose a windfall profit tax, which would be an additional imposition on a mining company if its total tax payments fail to meet the specified minimum government share from mining contracts. Under the bill, the minimum government share from all mining contracts would be 60% of net mining revenues.
At present, windfall profit tax is imposed only on mining companies operating under Financial and Technical Assistance Agreements (FTAAs) and the minimum government share for mining companies with FTAAs is 50% of net mining revenue. On the other hand, mining companies operating under Mineral Production Sharing Agreements (MPSAs) are not subject to windfall profit tax.
In addition, the bill seeks to impose a 10% export tax (based on the market value of mineral ore exports) to encourage domestic processing of mineral products.
Lastly, under the bill, a mining company will be treated as a separate taxpayer with respect to each of its mining contracts. Also known as ring fencing, this rule seeks to increase the tax base by ensuring that losses from other mining projects will not be deducted from the more profitable ones.
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