The government plans to slap royalty on all mining operations under the proposed tax package 2 Plus.

Documents obtained by the Inquirer showed that the Department of Finance had proposed to impose royalty on mining contractors for all metallic and nonmetallic mining operations, whether small- or large-scale.

At present, a royalty is imposed only on mine sites that were declared mineral reservations.

For operations within mineral reservations, the plan is to levy royalty equivalent to 5 percent of the market value of the gross output of the mineral products extracted or produced, exclusive of all other taxes.

For mining operations outside mineral reservations, the proposal sets the royalty at 3 percent yearly during the first three years, 4 percent on the fourth year and 5 percent beginning the fifth year onward.

Mining contractors will also pay an “additional government share” when the basic government share consisting of direct taxes, royalties, fees and other related payments amount to less than 50 percent of their net mining revenues.

Based on the DOF proposal, the additional government share would be equivalent to “the difference between the 50 percent of net mining revenue and the basic government share during the calendar year.”

The net mining revenue is derived by deducting expenses from gross output.

Also, the new mining tax regime will impose limitations on mining contractors’ interest expense deductions, depending on the debt-to-equity ratio.

A debt-to-equity ratio of 1.5:1 for an income year will not allow a deduction for the interest paid on the part of the debt that exceeded the ratio.

For a ratio exceeding 1.5:1 for a taxable year, meanwhile, the deduction will be disallowed if the amount of a contractor’s debt does not surpass the “arm’s length debt value.”

Besides the new mining taxes, package 2 Plus also slaps higher excise taxes on tobacco and alcohol products, and stops the sale of “loose”/per-stick cigarettes and e-cigarettes.