House panel approves mining royalty bill based on margins

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THE House Ways and Means Committee approved on Monday a substitute bill imposing a variable royalty on mining margins of 1-5% for firms outside designated mineral reservations, softening the Department of Finance’s (DoF) draft bill which had called for a 5% royalty on gross output on miners everywhere.

The committee agreed on royalties of 1 to 5% based on margins for firms operating off-reservation. Within these areas, the royalty is 3% of gross outputs.

“This is for (the mining industry’s) benefit. Actually it’s a win-win because we’re getting revenue for the government even if we change the basis of computation to margin-based from gross output,” committee chair Estrellita B. Suansing of the first district of Nueva Ecija told BusinessWorld in an interview, Monday.

The bill sets the royalty for firms outside mineral reservations to 1% for margins of between 1 and 10%; 1.50% for margins above 10% to 20%; 2% for margins above 20% to 30%; 2.5% for margins above 30% to 40%; 3% for margins above 40% to 50%; 3.5% for margins above 50% to 60%; 4% for margins above 60% to 70% and 5% for margins above 70%.

The royalty will be imposed on top of all other taxes, such as the 4% excise tax, the royalty to Indigenous People, and an average 1.7% local business tax among others.

The current system only imposes the 5% royalty on mining firms within mineral reservations. The enactment of the Tax Reform for Acceleration and Inclusion (TRAIN) law also resulted in the increase of the 2% excise tax to 4%.

Ms. Suansing said the bill also deters miners from loading up on debt by disallowing the deduction of interest expense beyond certain indebtedness levels, with the threshold set at a 3:1 debt to equity ratio.

The bill will also cover small-scale miners within and outside mineral reserves, who will be made to pay a royalty amounting to 1/10 of 1% of gross output.

The substitute bill also proposed a surcharge that will be paid by miners engaging in open-pit mining, but this was later omitted during the deliberation.

“I would like to respectfully seek clarification, perhaps appeal that it be reconsidered, because it will penalize, it will prohibit an existing extraction method that is currently allowed,” Sagittarius Mines, Inc. President Joaquin C. Lagonera told the panel, which agreed to delete the provision upon consultation with Speaker Gloria Macapagal-Arroyo who was also present during the deliberations.

In a separate development, the House on Monday passed on third and final reading the bill exempting small-scale miners from tax on gold sales to the Bangko Sentral ng Pilipinas.

With 192 affirmative votes, 4 negatives and 1 abstention, the chamber approved House Bill 3297, which will exempt small scale miners from the current 2% excise tax and 5% creditable withholding tax. — Charmaine A. Tadalan