Mining industry finds it ‘perplexing’ why gov’t seeks a tax hike

Posted on August 23, 2015 08:06:00 PM

THE CHAMBER of Mines of the Philippines views the proposed revenue sharing scheme currently being pushed by government as absurd and detached from the realities of existing global and national development trends.

In the aftermath of the European community crisis, terrorism in the Middle East, the devaluation of the Chinese Yuan and the impending rate increase in the US affecting the global economy, signs of slow growth have been indicated in almost all countries and these do not augur well in the Philippines.

Perceived Gross Domestic Product (GDP) growth for 2015 has been revised down in view of the declining growth rate indicated during the first half of the year.

With only $0.693 million mining investments recorded by the Mines Bureau in 2014, down from its original projection of $3 billion and with the Philippines lagging behind its Association of Southeast Asian Nations (ASEAN) neighbors in terms of direct foreign investments we find it perplexing how government can raise taxes steeply by as much as 71%, the highest among ASEAN countries amidst a declining tax base and the continuing moratorium in the grant of mining permits. Yet, government wants the fiscal regime to be attractive to investors and competitive with mineral resource driven countries.

The 71% proposed government rate is way beyond the 50-50 sharing framework originally conceptualized in the Mining Law and is out of line with what even developed countries collect. The rate will lower the companies’ rate of return and will not be competitive with other countries equally blessed with mineral resources with even better infrastructure and power facilities.

Metals prices have been down for some time and the reality is, mining companies are finding it hard to keep afloat and to keep employees, with a number already operating below break-even levels.

Companies are alarmed at policy maker’s insensitivity to the plight of mining business although they recognize the fact that mining activities in far flung areas act as catalyst in local development, stimulating other developmental activities and small businesses that enhance the areas’ economic and tax base.

If there is an economic activity that addresses inclusive growth, mining operation is one good example.

The much-touted $6 billion foreign direct investment recorded by the country in 2014, the highest achieved so far actually trails behind Singapore’s $72 billion, Indonesia’s $22.3 billion, Thailand’s $11.5 billion and Malaysia’s $10.7 billion. Even Vietnam was able to attract $9.2 billion worth of investments, which is higher than the Philippines.

The current fiscal regime has attracted mining investments in the country in the past and if the pipeline projects that have been stalled because of government’s inaction in addressing issues and concerns hampering the industry’s growth, projects of SMI’s Tampakan, Lepanto’s Far-southeast project, Philex’s Silangan Copper Project, Intex Resources’ Mindoro Nickel Project, Benguet Corporation’s Balatoc Tailings Project, Philsaga’s Gold Project and several emerging projects would have easily brought in $20 billion capital investments that would have enlarged the country’s tax base and that would have developed provinces where these projects are located.

It is unfortunate that we have lost so many opportunities to further expand the economy due to uncertain policies and indecisiveness of government. The current fiscal regime works with investors and local capitalists and we find it hard to look at government’s aim to get more from an industry that has yet to develop and flourish.

Republic Act 7942, also known as the Mining Act of 1995, has been touted as an innovative law. It is in actual operation for only six years.

Enacted in 1995, its IRR was released in 1996 but it was immediately challenged in the Supreme Court. The Supreme Court issued its final decision in 2006. In 2012, Executive Order 79 effectively ordered a moratorium on the issuance of new mining permits rendering the law dormant.

Source: www.bworldonline.com