From DOF, a simpler tax regime for miners

The Department of Finance (DOF) has put forward a blueprint for the rationalization of the tax regime for the mining sector, saying this would simplify taxation of the industry and potentially shore up the government’s revenue share.

Finance Secretary Cesar Purisima said the DOF’s proposal has three basic provisions, the first of which requires mining companies to pay only one type of tax in lieu of all other taxes.

The tax is to be remitted only to the national government, which will then distribute the shares of concerned local government units.

Purisima said this would address the complexity of the current system, under which mining companies pay several taxes to the national and local governments.

The second provision requires mining firms to pay royalties to the national government.

This provision, Purisima said, recognizes the idea that the state is the owner of natural resources and, as such, must get not only revenue in the form of tax, but also revenue that an owner ought to receive.

The third provision calls for the adjustment of royalties depending on the fluctuation of prices in the world market.

This means that if mineral prices were to go up, so should the government’s share in the revenues.

“We want the country to benefit from an increase in mineral prices. As the resource owner, the country should get more benefits as prices rise,” Purisima said in a briefing last Friday.

The finance chief declined to provide any  more detail about the blueprint, particularly the proposed rates for the tax and the royalty, pending approval of President Aquino.

Once the President gives his blessing to the proposal, it would then be submitted to Congress.

A contentious issue, however, is the base that will be used for computing the tax rate. While the government wants to use gross income as the basis for computing the tax rate, mining companies said the tax must be based on net income.

Purisima said the DOF respected the opinion of the mining companies, but said debates on the issue should be done during the legislation process.

“The best venue to reconcile the different ideas is the legislature. This is because, if we try to reconcile first before submitting a proposal to Congress, [the implementation of a new tax regime] may take a very long time,” Purisima said.

Rationalization of the tax regime for the mining sector is deemed necessary to attract more investors and to realize the projected gains from it.

According to estimates, around 9 million hectares of the country’s land area may contain mineral deposits. Moreover, these mineral deposits are believed to be worth around $1 trillion, or about four times the country’s gross domestic product.