TRAIN 2 to deter mine investment

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THE Philippines is running the risk of losing mining investors if the government passes the bill raising the mining excise tax to 5% from 2% under the second package of the Tax Reform for Acceleration and Inclusion (TRAIN) law, according to the Chamber of Mines of the Philippines (CoMP).

“Everybody thinks we’re making a lot of money but reality is that we are not. One of the (mining companies) has been losing money for the last two years. You introduce an additional 5% royalty to their tax structure and you run the risk of those mines closing down. These are big mines of copper, gold, bigger than nickel,” CoMP Chairman Gerard H. Brimo told reporters on the sidelines of the Mining Philippines Conference and Exhibition 2018 in Sofitel Philippine Plaza Manila.

“It is punishing. You can’t expect investors to come here under that tax structure,” according to Mr. Brimo.

Mr. Brimo said that if the bill passes, the Philippines will have the highest excise tax among top mining countries such as Chile, South Africa, Canada, Australia and Peru.

“It’s a problem for new projects going forward. If that bill passes, we are not going to see investment in our mineral sector anymore from quality companies. We want to attract companies that are large, technically knowledgeable, have a lot of resources and can do things properly.” Mr. Brimo said.

According to Mr. Brimo, the government must instead come up with a technical working group to come up with a competitive tax model for the mining sector, as any wrong move in taxation can cause billions of pesos to be lost and companies shut down. His worst-case scenario also includes no new investment and a decline in employment and social development.

“If we end up with a tax structure that is not competitive, we will not see quality investment in the mineral sector. That’s a fact,” Mr. Brimo said.

The bill, filed by Nueva Ecija 1st District Rep. Estrellita B. Suansing, inserts a new section in the National Internal Revenue Code of 1997 that proposes a 3% royalty based on the market value of the gross output of mines located outside mineral reservations in the first three years of effectivity of the measure, rising to 4% in the fourth year and 5% in the fifth year.

It retains the 5% royalty based on the market value of the gross output of mineral products extracted or produced within mineral reserves, exclusive of all other taxes.

At the House, where the royalty scheme was being debated, miners also said the taxation system is “unjust.”

“I vehemently object to this because it is not fair that the government is taxing the industry unjustly,” Filminera Resources Corp. Director Gloria Tan Climaco said, particularly referring to the inclusion of companies outside mineral reserves.

“You are going to kill a legitimate sector and allow the flourishing of people who will destroy the environment,” she said.

Ms. Climaco was speaking before the technical working group of Panel on Ways and Means, tasked to consolidate House Bills 7994 and 422.

The royalty tax will be imposed on top of the 30% corporate income tax and 4% excise tax on mineral products among other taxes.

Marcventures Holdings, Inc. President Isidro C. Alcantara, in support of Ms. Climaco said: “at this point, I think we are contributing a good share; putting this there… may be burdensome and may affect our competitiveness against other nickel exporters.”

Finance Fiscal Policy and Planning Director Elsa P. Agustin said the royalty will compensate the state as the owner of the mineral products being extracted.

“The mining industry is using state resources and we want to be compensated. We want a royalty as a compensation to the state being the owner. The excise tax has a different rationale,” Ms. Agustin said.

The government upon implementing the Tax Reform for Acceleration and Inclusion (TRAIN) law in January 2018 raised the excise tax on mineral products to 4% from 2%.

Bangko Sentral ng Pilipinas Assistant Governor Iluminada T. Sicat appealed to the Department of Finance to exclude from the royalty coverage small-scale miners.

“If they (small-scale miners) are exposed to the application of royalty fee, this will further discourage them from selling gold to us,” Ms. Sicat said.

“This will not allow the small scale miners to benefit from fair gold prices,” she also said.

The House Ways and Means Committee, according to Chair Estrellita B. Suansing of Nueva Ecija, plans to consolidate the bills and come up with a committee report within the week, as ordered by Speaker Gloria Macapagal-Arroyo.

Department of Environment and Natural Resources (DENR) Secretary Roy A. Cimatu said in his speech at the mining conference that the Philippine mining industry needs to be reinvented not by imposing more taxes but by strictly conserving natural resources.

Mr. Cimatu’s speech was delivered by DENR Undersecretary Analiza A. Rebuelta-Teh, as Mr. Cimatu was up north looking into the landslide in Itogon, Benguet, killing dozens of small-scale miners.

“We can do more not by imposing additional taxes or giving incentives, or implementing social development programs. We can do more by strictly complying with the protection and conservation of the natural resources to ensure that future generation will benefit,” according to Mr. Cimatu.

“Let us continue undertaking reforestation programs… Let us implement progressive rehabilitation in our mining areas. Let us provide appropriate mitigating measures to protect our watershed and water bodies. But most of all, let us follow strictly the environmental guidelines in all aspects of mining operation,” Mr. Cimatu said.

Mr. Brimo said CoMP is not against small-scale mining, but noted that illegal practices on the fringes of the business affects the image of the large miners.

“It is unfortunate and we grieve for them, and for their families. Of course, our detractors are using it to point fingers at the mining industry,” Mr. Brimo said.

“It should not be an indictment of the mining industry, the formal large-scale mining industry has nothing to do with that activity. In fact, our members are helping in the search and rescue efforts taking place as we speak… We are heavily regulated and scrutinized and monitored, but the problem is that when there are incidents that involve small-scale mining… it (becomes) as an indictment of the entire industry,” Mr. Brimo said.

Mr. Brimo noted that the government should do more by collecting taxes from small-scale miners.

“Is the government doing enough? I think the government should do more. There is a lot of gold that comes out of our small-scale mining sites where there are no taxes being paid. It’s billions of pesos. If the government wants to collect taxes, they should certainly do something about that,” according to Mr. Brimo.

Benguet Corp., which was reported as the owner of the Antamok site including the bunkhouse in Itogon used by the small-scale miners, said it gave up the bunkhouse to the DENR in December 2017 under the Minahang Bayan program.

“In donating the property, the company wants all small-scale miners in the surrounding claims relocated and their activities confined within the proposed Minahang Bayan where their mining will be strictly controlled and regulated by the government,” Benguet Corp. said in a statement on Tuesday.

“On May 15, 2018, the company wrote a letter to the DENR National Task Force Mining Challenge requesting assistance for the permanent closure and stoppage of all illegal mining and processing activities within its Itogon mining claims and for the relocation of the displaced small-scale miners into the planned Minahang Bayan sites in Antamok,” Benguet Corp. added.

Benguet Corp. is a member of the CoMP.

On the same day, Mr. Cimatu ordered a review of all Minahang Bayan applications nationwide for a safety review.

The Mines and Geosciences Bureau (MGB) had said that 10 small-scale miners associations in the Cordillera Administrative Region (CAR) have been granted temporary mining contracts in Itogon, Benguet, pending the declaration of a Minahang Bayan.

According to MGB, there are currently 20 or 21 Minahang Bayan sites in the country.

Mr. Cimatu also said that he would request the Philippine National Police and the Armed Forces of the Philippines in monitoring compliance with the ban. — Reicelene Joy N. Ignacio and Charmaine A. Tadalan