DOF pushes uniform 5% royalty rate for mining

MANILA, Philippines — The Department of Finance (DOF) has appealed for the Senate to adopt its original proposal for mining fiscal reforms, which is projected to raise about P7.2 billion in additional revenues in the first year of its implementation.

In a statement, the DOF said it has made a last-minute appeal to the Senate to pass the original mining reform proposal of the DOF, as contained under Senate Bill 1979, instead of the version approved by the House of Representatives.

The DOF wants to retain, in particular, the provision which pushes for a uniform royalty rate of five percent for all mining operations, whether located inside or outside a mineral reservation areas.

Finance Assistant Secretary Ma. Teresa Habitan, during the last hearing of the Senate ways and means committee on the measure, said the proposed uniform tax rate is pursuant with the government’s objectives of making the country’s tax system simpler, more efficient and fairer for all taxpayers.

“In the House, there was a considerable discussion about how the royalty was going to be calculated and with different methodologies on that. What finally was approved by the House can be considered a compromise position. The DOF always wanted a simpler manner of computing the royalty,” Habitan said.

Senate Bill 1979 calls for the retention of all existing taxes and fees on the mining industry. 

It also pushes for the imposition of a five-percent royalty on the gross output of all mining operations, regardless if they are large scale or small scale, metallic or non-metallic, or located inside or outside of mineral reservations.

For those outside mineral reservations, the royalty fees would be implemented on a staggered basis, from three percent in the first three years of implementation, four percent on the fourth year, to five percent in the fifth year.

SB 1979 also provides for an additional government share when its basic share is less than 50 percent of the net mining revenue; thin capitalization to avoid mining contractors relying too much on debt funding; and ring-fencing in which each mining project will be treated as a separate taxable entity.

Unlike the original DOF proposal, Habitan said the House-approved version lowered the current five percent royalty on large-scale mining inside mineral reservations to three percent.

It also imposes a royalty equivalent to one to five percent of profit margins for large-scale mining outside mineral reservations, and 0.1 percent of gross output for small-scale mining outside or inside mineral reservations.

According to Habitan, the original DOF proposal may generate P7.2 billion in incremental revenues in the first year of its implementation.

However, she said this would be lowered to P3.7 billion should the House version be approved.

Citing data from the Mines and Geosciences Bureau (MGB), the DOF official said the Bureau of Internal Revenue (BIR) collected P1.1 billion in royalties and P1.9 billion in excise taxes from mining operations in 2017.

She said these royalties were collected only from operations inside mineral reservations as those operating outside these zones are not required to pay them.