DOF wants to extract more funds from mining firms

MANILA, Philippines — The Department of Finance (DOF) wants to collect more income-based taxes and royalties from mining firms than what House lawmakers were hoping to raise under a bill that seeks to establish a new fiscal regime for the industry.

In a statement on Wednesday, the DOF presented the salient features of its “refined” proposal to rationalize the fiscal regime for the mining sector, which would impose margin-based royalties and windfall tax on large-scale miners, among others.

The DOF said the tweaks—which were crafted when Finance Secretary Ralph Recto took office in January—aim to “improve” House Bill (HB) No. 8937 that was passed by the House in September last year. The department’s proposal is estimated to generate P47 billion in incremental revenues from 2024 to 2028.

The House’s version of the measure would allow the government to collect margin-based royalty ranging from 1 to 5 percent on income from mining operations outside of mineral reservations.

The corresponding taxes would be computed using an eight-tier structure.

Royalty tax hike

But this time, the DOF wants to raise the royalty rate to 1.5 to 5 percent, which would be computed using a “simpler” four-tier structure to “lessen incentives for the private sector to pursue aggressive accounting to avoid taxes.”

The finance department is also looking into imposing a four-tier margin-based windfall profits tax rate ranging from 1.5 to 10 percent on income from mining operations.

If enacted, that would be higher than the 1 to 10 percent rate under HB 8937, which would use a 10-tier structure.

Explaining the adjustments, the DOF said the higher rates were proposed “in light of the sudden increases in the world prices of metal.”

“This is just the first step. We can be a major player in this global economy in terms of mineral production. We just have to realize it with the right policies,” Finance Undersecretary Karlo Fermin Adriano said.

‘Uncompetitive’

The Rationalization of the Mining Fiscal Regime aims to establish a single and rationalized fiscal regime applicable to all mining agreements while ensuring the sector’s sustainability and the government’s equitable share to mining revenues.

While the mining industry had generally supported state plans to collect margin-based royalty and windfall profits tax, the higher rates being proposed by the DOF, however did not sit well with the sector.

Michael Toledo, chair of the Chamber of Mines of the Philippines, said the higher royalty rate sought by the DOF would make the local mining tax structure “even more uncompetitive.” —Ian Nicolas P. Cigaral