Increasing the Mining Tax

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Lysander N. Castillo

Thinking Beyond Politics

Increasing the Mining Tax

One of the more recent pronouncements from Department of Environment and Natural Resources (DENR) Secretary Roy Cimatu was a statement favoring an increase on the excise tax on mining companies. Sec. Cimatu was even quoted as using “absolutely” in qualifying whether or not there was a need to raise taxes.

Of course, he was referring to Section 151 of the National Internal Revenue Code (NIRC), which imposes a 2% tax on all metallic minerals, like copper, gold and chromite, and all nonmetallic minerals and quarry resources “based on the actual market value of the gross output thereof at the time of removal, in the case of those locally extracted or produced; or the value used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation.”

Without a doubt, such a policy direction has been given a tremendous boost when the Senate doubled such excise rates from the said 2% to 4%. The opportunity came when the Senators deliberated on and eventually passed their own version of the Tax Reform for Acceleration and Inclusion (TRAIN) Bill. Stakeholders, academicians, and policy makers have been calling for the increase of the minerals excise tax rates, which were last adjusted more than two decades ago, in 1994.

At the 2% level, the Mines and Geosciences Bureau (MGB) reported collections by the Bureau of Internal Revenue (BIR) of excise taxes from mining amounting to roughly P2.5 billion in 2013, P3.2 billion in 2014, P2.1 billion in 2015, and P1.8 billion in 2016. The excise tax is but one revenue source for the government from mining apart from the royalties, fees, and charges collected by the DENR-MGB, the other taxes collected by the national government agencies, and the separate taxes, fees, and charges collected by the host local government units (LGU).

Last year, the other collected fees amounted to some P33.4 billion. This should not be a bad figure for an industry with only 41 operating metallic mines, and whose footprint is not even equivalent to 0.3% of the Philippines’ total land area.

If the 4% mineral excise rate provision is carried through the bicameral conference process and signed by President Rodrigo Duterte into law, then the increase translates to P4 billion, or an additional P2 billion, in government revenues going by the 2016 BIR collection. Certainly, this is a welcome inclusion to the revenue streams the Duterte administration identified to fund its 10-Point Socioeconomic Agenda, particularly the Build, Build, Build Program. Indeed, mining must contribute to the government’s initiatives to uplift the lives of Filipinos aside from the mining companies’ mandate to look after the welfare of their host communities.

Better still, from a consumer’s point of view, tapping the mineral excise tax will be greeted with a sigh of relief as this should not directly affect the prices of goods, unlike the increased taxes on petroleum products and automobiles, and the imposition of a new tax on sugar-sweetened beverages.

Moreover, the doubling of the minerals excise tax will also go a long way in benefitting the LGUs that bear the brunt of mining operations, if mining companies are allowed to directly remit their shares.

Under the Local Government Code, LGUs “shall, in addition to the internal revenue allotment, have a share of 40% of the gross collection derived by the national government from the preceding fiscal year from mining taxes, royalties, forestry and fishery charges, and such other taxes, fees, or charges, including related surcharges, interests, or fines, and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction.”

Sadly, it takes too much time before the host LGUs receive their shares because of the typical bureaucracy bog down.

Under the current process, excise taxes paid by mining companies to the BIR goes through several offices before reaching the Bureau of Treasury and then the Department of Budget and Management (DBM). It is through the DBM that the LGU shares are released as part of their Internal Revenue Allotments. Consequently, reports provide that these shares get held up for several years, with one even reaching 20 years, leaving the LGUs and their constituencies feeling shortchanged by mining in their areas.

Lastly, improving transparency will be the best way to ensure that taxes go to where they should, especially in the context of an increase in taxes.

Thus, further institutionalizing the Philippine Extractive Industries Transparency Initiative (PH-EITI) should prove to be the answer when it comes to mining taxes.

Created in 2013 as part of an international approach, the PH-EITI has since published three country reports detailing how much the government collects from extractive industries like mining. Effecting mandatory private sector participation in the EITI process will definitely be a big step towards ensuring the correct payment of taxes, and that what has been paid is what the government received.


Lysander N. Castillo is an Environment Fellow at the Stratbase ADR Institute and Secretary-General of Philippine Business for Environmental Stewardship (PBEST).