Gov’t warned vs hiking mining tax further

The Canadian Chamber of Commerce of the Philippines has cautioned the government against further raising taxes from the mining industry under the proposed reforms to the existing Mining Act, as this would only serve as a disincentive to many prospective investors.

The Philippine government must also be equally restrictive with small scale and illegal miners to ensure that they will pay their fair, rightful share of taxes, and ensure that they will be as socially and environmentally responsible as the large miners, said CanCham president Julian H. Payne.

“The government is correct in insisting on socially and environmentally sustainable mining. It is also correct in arguing that a fair share should go to benefit the Philippines in general and the people, and we don’t contest that,” Payne said in an interview with the Inquirer last week.

“However, it seems to us that the government is not paying enough attention to the fact that if you increase the fiscal regime to a point where it’s much higher than other alternative mining countries, the mining investor will not come to the Philippines to invest here, and therefore the supposed benefits will not materialize. In fact, you may end up with less,” he added.

Payne noted that the current Mining Act is a good piece of legislation and that the only problem lies in its enforcement. The reforms being put forward in the proposed Mining Act amendments, however, are seen as “disincentives in mining.”

“Under the proposed fiscal regime being recommended, the entire take of the government from mining—and not just the 2 percent—would total 60 percent [of revenues], which is one of the higher ratios in the world today. The Philippines is hardly competitive now and if it increases the fiscal take, it’s likely to be less competitive,” Payne explained.

“This will be disincentive to investors in mining and further, it may in fact reduce the total take by the government, because if future investments in mining go down, you may have 60 percent of a much smaller amount. Mining investors have many places to go, where the [fiscal] regime is more favorable,” he added.

Payne stressed that mining, as it is, is a high risk business in terms of financial investments. Many of the mines and explorations don’t always produce favorable results, so an investor could invest large sums of money without getting positive returns. The volatility of commodity prices is also another risk factor to be considered.

“As we understand it, the new [and proposed] fiscal regime has a provision that basically taxes us when we have excess profit, but it does not have provisions for losses. Mining investors are being put in a position where they will have to pay high taxes regardless of whether they have losses, and that they will be taxed if they have profits. In a high risk business like mining, this creates a situation where investors will question if it’s worthwhile to take risks with the possibility that profits are going to be taxed,” he further explained.

Payne also brought up the fact that the government, as based on their perception, is not being equally restrictive in controlling small scale mining and illegal mining to ensure that these sectors will not have adverse social impact.

“What we’re seeing is that while restrictions are on big international mining companies, which are generally socially and environmentally responsible, the other resources are being exploited increasingly by the small scale miners and illegal miners, who don’t always follow environmental protection regimes, who aren’t always socially responsible, who may not always respect indigenous people’s rights, who don’t pay taxes, and who give mining a bad name,” he added.