NEWS

By Louise Maureen Simeon | The Philippine Star | March 7, 2024 12:00AM

As part of its refined priority tax measures, the DOF is tweaking the rationalization of the mining fiscal regime, which aims to simplify the tax system, ensure the government’s fair share in revenues and establish good governance in the industry. STAR / File

MANILA, Philippines — The Department of Finance (DOF) is pushing for higher rates and fewer tiers in taxing the extractive sector, but the mining industry argued that the proposed structure would make the sector more uncompetitive.

As part of its refined priority tax measures, the DOF is tweaking the rationalization of the mining fiscal regime, which aims to simplify the tax system, ensure the government’s fair share in revenues and establish good governance in the industry.

Finance Undersecretary Karlo Adriano said the DOF simplified the current proposal under House Bill 8937 by adopting fewer tiers and rates for easier compliance and administration and lesser incentives for aggressive accounting.

The DOF version will be filed in the Senate as counterpart to the measure in the House of Representatives.

While the principles remain the same through a margin-based royalty computed on income and a windfall profit tax (WPT), the finance department wants to just implement a four-tier approach instead of an eight-tier structure for operations outside mineral reservation areas.

This will effectively increase the minimum rate to 1.5 percent of the margin instead of one percent.

“A four-tier makes it simpler for investors and the Bureau of Internal Revenue to compute the corresponding tax rates,” Adriano said.

“The simplified DOF version will also lessen incentives for the private sector to pursue aggressive accounting to avoid taxes,” he said.

The DOF will also introduce a windfall profit tax mechanism to ensure the government’s fair share when there are positive circumstances such as price spikes in the global market, whether short-term or long-term.

However, the DOF wants to lower the tiering to just four instead of 10 as proposed in the lower house, while rates will be at a minimum of 1.5 percent.

For example, the minimum rate under the DOF proposal is 1.5 percent for a margin of 26 to 45 percent. This compares to the one percent tax for a higher margin of 25 to 40 percent.

Sought for comment, Chamber of Mines of the Philippines (COMP) executive director Ronald Recidoro expressed concerns on the simplified and shortened tiers.

“To our mind, a 26 percent margin is simply too low to be considered a windfall. We would rather that the WPT kick in only when the company has a margin of at least 35 percent,” Recidoro told The STAR.

“The industry supports the underlying principle for the margin-based tax regime. But we like the House version better,” he said.

COMP chairman Michael Toledo added that the DOF proposal would make the mining tax structure even more uncompetitive.

The DOF proposed compromise regime will also generate higher additional mining revenues for the government.

Its proposal is estimated to yield at least P10.23 billion annually starting 2025, higher than the P8.4 billion projected based on the House version.

Finance Secretary Ralph Recto earlier said discussions to rationalize the country’s mining fiscal regime started in 2012, yet the Philippines’ mining potential remains untapped.

“The passage of this reform will establish a predictable and stable policy environment that is conducive to investments,” Recto said.

In the Philippines, there are nine million hectares identified as having high mineral potential, but only 2.6 percent is covered by mining tenements as of June 2023.

Source: The Philippine Star

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