Oil firms to lower fuel prices tomorrow

August 6, 2018 | 3:48 pm

Oil companies are rolling back the cost of petroleum products this week, although at a rate lower than the price increases in recent weeks.
Gasoline and diesel products will both be cheaper by P0.10 per liter, while kerosene prices will be lower by P0.25 per liter.
Seaoil Philippines, Inc. will be among the first to cut prices at 12:01 a.m. on Tuesday, Aug. 7. Most oil companies will be reducing prices at 6:00 a.m. tomorrow.
The reduction this week follows last month’s almost weekly price increases, which peaked at P1.15 per liter for gasoline last Tuesday. Diesel and kerosene prices also rose significantly last week at P0.95 and P0.85 per liter, respectively.
Meanwhile, Petron Corp. said it is now accepting the Pantawid Pasada Card distributed by the Department of Transportation and Department of Energy in 740 service stations nationwide.
It said the stations are marked with a Pantawid Pasada Program signage and are along high-traffic transport routes. Public utility jeepney drivers just need to present their cards to any service station attendant for proper identification and validation before fueling up with diesel. — Victor V. Saulon

COL Financial lowers end-2018 projection for PSE index

August 6, 2018 | 3:18 pm

COL Financial Group, Inc expects the Philippine Stock Exchange index (PSEi) to end at the 8,600 level by the end of the year, revising downward its earlier projection following higher than expected inflation figures and the continued outflow of foreign funds from the local market.
The local brokerage firm counted a number of risks that the bourse encountered during the first half of the year, including faster inflation, delays in the implementation of rate hikes by the Bangko Sentral ng Pilipinas, and the movement of funds away from emerging markets (EM).

NOW: Col Financial Group Chief Equity Strategist April Tan gives their mid-year market report @bworldph pic.twitter.com/fRZskognin

— Arra Francia (@arra17) August 6, 2018

This prompted the group to lower its end-2018 projections by 7.5%, from the 9,300 level it predicted last February.
“The good news is negatives have already been priced in. In terms of valuation, (stocks) are already very cheap,” COL Financial Chief Equity Strategist April Lynn C. Lee-Tan said in a media briefing in Ortigas Center on Monday. — Arra B. Francia

SM Prime profit up by 16% in first half

August 6, 2018 | 1:35 pm

The property firm of country’s richest man Henry Sy, Sr. reported a 16% profit growth for the first six months of 2018, driven by the provincial expansion of its malls alongside higher demand for residential properties.
SM Prime Holdings, Inc. said in a statement on Monday, Aug. 6, that its net income reached P16.62 billion for the January to June period, on the back of a 15% uptick in consolidated revenues to P49.77 billion.
“SM Prime’s expansion projects in various progressive provincial areas in the Philippines, as well as bolstered presence in Metro Manila, allowed the Company to maintain double-digit growth in all of our businesses,” SM Prime President Jeffrey C. Lim was quoted as saying in a statement. — Arra B. Francia

China prepared for long trade war with US, state media says

August 6, 2018 | 1:26 pm

After a weekend of claims by U.S. President Donald Trump that he has the upper hand in the trade war with China, Beijing responded through state media by saying the nation is ready to endure the economic fallout.
China is prepared for a “protracted war” and doesn’t fear sacrificing short-term economic interests, according to an editorial in the nationalist Global Times on Sunday evening. “Considering the unreasonable U.S. demands, a trade war is an act that aims to crush China’s economic sovereignty, trying to force China to be a U.S. economic vassal.”
The exchange of barbs between the two sides follows the release late Friday in Beijing of a tariff list designed to retaliate against the U.S. threat to impose new duties on $200 billion of Chinese imports. The worsening of the tension comes amid a slowing of China’s economy, declines in the currency and a bear market in stocks.
Trump told an audience of diehard supporters on Saturday that playing hardball on trade is “my thing.”
“We have really rebuilt China, and it’s time that we rebuild our own country now,” Trump said Saturday during about an hour of free-wheeling remarks at a rally outside Columbus, Ohio. China’s market declines weaken that nation’s bargaining power in the escalating trade war, he added.
Recent comments and developments in the trade dispute John Bolton says U.S. will take the trade war “far enough to get China to change” Larry Kudlow says Trump won’t back off of China Trump says U.S. has upper hand with China Tit-for-tat becomes the norm
Trump continued his focus on tariffs Sunday morning, tweeting that the duties are working “big time” and that imported goods should be taxed or made in the U.S. He also suggested duties will allow paying down “large amounts of the $21 trillion in debt that has been accumulated” while reducing taxes for Americans.
“Every country on earth wants to take wealth out of the U.S., always to our detriment,” Trump tweeted, “I say, as they come, Tax them.”
The yuan extended gains following a rally triggered by a surprise China central bank move to make it more expensive to bet against the currency. China stepped in Friday to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.
Duties ranging from 5 percent to 25 percent will be levied on 5,207 kinds of imports from America if the U.S. delivers its proposed taxes on another $200 billion of Chinese goods, the Ministry of Finance said in a statement on its website late Friday.
Including the new tariffs already in force, China has now identified almost 6,000 items for higher import taxes, including liquid natural gas, soybeans, and other products. That covers more than two-thirds of the value of China’s imports from the U.S., but it excludes products such as big aeroplanes and some computer chips, which China struggles to produce domestically.
“Chinese buyers don’t have any bargaining power on these products. Even if the trade war escalates, China would rather lift the 25 percent tariffs to 50 percent, instead of imposing any tariffs on integrated circuits or big airplanes,” according to Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “What’s the point of imposing tariffs? Chinese companies would have to pay all the additional costs.”
In addition, more than 500 goods on the lists aren’t traded at all, and China imported less than a million dollars worth of about another 2,000 items, according to a Bloomberg analysis of 2016 trade flows. Hu says one speculation about these phantom items is that the government is bluffing to create a longer list.
President Trump last week ordered officials to consider imposing a 25 percent tax on $200 billion worth of imported Chinese goods, up from an initial 10 percent rate. The move was intended to bring China back to the negotiating table for talks over U.S. demands for structural changes to the Chinese economy and a cut in the bilateral trade deficit, but China’s response suggests that tactic hasn’t worked.
“In the face of the bullying of the Donald Trump administration, Beijing must remain sober-minded and never let emotion override reason when deciding how to respond,” according to an editorial by the China Daily, the flagship state-run English newspaper. “Given China’s huge market, its systemic advantage of being able to concentrate resources on big projects, its people’s tenacity in enduring hardships and its steadiness in implementing reform and opening-up policies, the country can survive a trade war.” — Bloomberg

Gold may hit $1,300 by end of year, ICBC says

August 6, 2018 | 1:18 pm

Gold’s plunge to the lowest level in more than a year may be close to ending, and prices could climb back to $1,300 by December, according to ICBC Standard Bank Plc.
Bullion is set to average $1,260 an ounce in the third quarter and rise further in the following three months as interest rate increases are priced in and physical demand emerges, Marcus Garvey, a London-based commodities strategist, said in an interview in India. “We are going to see almost certainly two U.S. interest rate hikes come this year, but they are already, if not fully priced, fairly nearly. So there isn’t a huge scope for a surprise there.”
Gold’s appeal has been fading this year with prices sliding near to the key $1,200 level, partly because of an upbeat outlook on the U.S. economy that’s strengthened the dollar. The metal saw some relief on Friday as U.S. hiring cooled in July and China moved to support its currency.
“There is a risk in the short term for a dip below $1,200 if the current market dynamics persist,” Garvey said on the sidelines of a conference in Kochi. “But looking at the next six months, we are actually around the bottom for this cycle already, so it is more suited in the long term for investors as a decent level for purchasing for their portfolios,” he said.
Although the headline level for the U.S. business cycle looks very healthy, there are some concerns over credit stress, making it questionable whether the U.S. consumer can withstand materially higher interest rates, he said.
Hedge Funds
The view that bullion’s pain may be nearing an end is shared by Nic Johnson, a Pacific Investment Management Co. money manager, who said late last month that falling gold prices in the absence of rising real yields suggest the metal has cheapened versus other U.S.-denominated haven assets. That along with comments by President Donald Trump “lamenting the strong dollar” could reignite interest in the metal, he said in a blog.
Still, the big money is wagering gold’s recent troubles aren’t over. The latest government data show hedge funds and other large speculators raised net-short bets on the precious metal in the week to July 31 to the most since at least 2006. Traders are concerned a stronger dollar, economic growth and the Federal Reserve’s plan to raise interest rates will further dim prospects. — Bloomberg

Asia’s new stock-market king has strong profits, BOJ support

August 6, 2018 | 1:14 pm

With Japan regaining its place as the second-biggest stock market amid growing trade tensions between the world’s two largest economies, investors expect the nation’s equities to garner more attention.
Japanese shares were worth $6.15 trillion on Friday compared with just under $6 trillion for Chinese equities, according to data compiled by Bloomberg. The markets swapped position behind the U.S. for the first time since 2014, making Japan Asia’s biggest stock market.
While Chinese stocks have suffered recently from the country’s ongoing trade spat with the U.S., their Japanese peers have benefited from improved earnings and the Bank of Japan’s annual purchase of up to 6 trillion yen ($54 billion) in exchange-traded funds. Still, market observers are divided over what impact the mounting trade war might have on Japan.
“If China and the U.S. are going to throw bricks at each other’s windows, it pays to be the one that sells glass to both sides,” said Nicholas Smith, an equity strategist at CLSA Ltd. “That’s Japan.”
The Topix index has lost 4.1 percent this year, compared with a 17 percent slide in the Shanghai Composite Index.
Nearly 60 percent of companies listed on the Japanese benchmark that have reported earnings so far for the latest quarter have beaten analyst expectations. Notable companies announcing results this week include SoftBank Group Corp., Nippon Telegraph & Telephone Corp. and Recruit Holdings Co.
Big Beats
“We’ve seen some pretty big beats from some big companies including Sony, Hitachi and Fujitsu. That’s the major driver,” said Kieran Calder, head of Asia equity research at Union Bancaire Privee.
He expects the positive trend in Japanese earnings to continue. First-quarter results suggest room for upward revisions of company guidance, which tend to be conservative at the start of the fiscal year, he said. With many firms basing their forecasts on the yen at 105 per dollar, the current level serves as a tailwind for those sensitive to currency movements, Calder added.
Japan regaining the No. 2 spot calls attention to its “market thrashing consensus earnings forecasts” as well as its relatively appealing valuations, CLSA’s Smith said.
External Economies
Japan remains dependent on external economies such as China and U.S. as well as on a weaker yen, said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management. Corporate earnings should remain solid “as long as we see a continuing strong expansion in the U.S. economy, and action by China to support their economy by increasing fiscal spending and easing monetary policy.”
Corporate Governance Enthusiasm
“There is a newfound enthusiasm for corporate governance that is manifesting with announced share buybacks year-to-date being up in value terms by over 25 percent year-on-year,” said CLSA’s Smith. In Japan 58 percent of Topix non-financials are net cash, and “at last shareholders are starting to unlock some of that hitherto trapped value.”
Political stability, an attractive valuation compared with other developed markets and signs of improving corporate governance are fueling Nomura’s optimism on Japan’s equity market, said Nomura Holdings Inc. strategist Jim McCafferty. The firm is overweight on the shares.
The 2014 publication of the stewardship code aiming at encouraging investors to be more forceful in demanding higher returns will lead to companies putting more money to work. As a result, they’ll either expand their business or increase dividends or share buybacks, McCafferty said.
Staying Neutral
“We haven’t changed our Japanese exposure in the last few months, maintaining a neutral exposure,” said Daryl Liew, head of portfolio management at Reyl Singapore Pte. There have been “no real red flags” after “decent” earnings results so far.
“Japan being No. 1 or No. 2 doesn’t effect us at all as we are all about market and sector depth, as well as cheap transparent trading costs, which is something Japan offers well ahead of China,” said Andrew Jackson, head of Japanese equities at Soochow CSSD Capital Markets. “It’s more about volatility for me than anything.”
Re-discovering Japan
“The news will make global investors pay more attention to Japan and that will result in re-discovering the attractions of Japanese companies,” said Hideaki Fukuchi, Asia equity sales at Auerbach Grayson and Co. in New York.
Retaking the No. 2 position was due to not only the better prospects of the Japanese economy but also Japanese companies’ long-term efforts to pursue more advanced technologies, improve corporate efficiency and focus on better corporate governance, Fukuchi said. — Bloomberg

Economists expect fresh rate hike

August 6, 2018 | 12:33 am

By Melissa Luz T. Lopez
Senior Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) will most likely raise benchmark interest rates anew this week as inflation can be expected to have spiked further in July, analysts said in a BusinessWorld poll, with some noting there is room for a 50-basis-point (bp) hike to ease price pressures.
A poll of 14 economists last week yielded a median estimate of 5.5%, which if realized will inch up from June’s actual 5.2% and soar from July 2017’s 2.4%.
The estimate also falls in the middle of the 5.1-5.8% range given by the BSP Department of Economic Research last week.

“The main product groups that likely posted sharp price increases are fish, rice, corn, fruits, vegetables, tobacco, transport, electricity, gas and fuel,” said Security Bank Corp. economist Angelo B. Taningco, who gave a 5.7% estimate.
Typhoons and monsoon rains that hit the country last month contributed to price pressures, as did the P1 provisional increase in jeepney fares that took effect in early July, the analysts said.
The Philippine Statistics Authority will report official inflation data on Tuesday. As of end-June, prices have increased by an average of 4.3%, well beyond the BSP’s 2-4% goal for 2018.
Preliminary data from the Finance department showed that July inflation could settle at 5.3%, still higher than June’s tally which was a nine-year high.
Economists saw a broad-based increase in commodity prices, led largely by movements in food and fuel costs. The peso, which traded weaker than P53 versus the dollar last month, may have also jacked up the cost of imported goods.
“It is likely that the peak of inflation is still ahead of us,” said Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, adding: “We expect government efforts to make a more significant impact on alleviating supply and distribution weaknesses.”
Analysts said that inflation could top out in August and slowly slide back to the target range by 2019.
Emmanuel J. Lopez, economics professor and dean of the Colegio de San Juan de Letran Graduate School, also noted that price increases could “gradually taper off” this month amid a slowdown in business activity because of the Chinese “ghost month” superstition.
The BSP has said that inflation will likely peak this quarter and eventually ease, bringing the full-year average to 4.5%.
RATE HIKE
The economists agree that the BSP will raise policy rates this week, but differ on magnitude.
Six analysts said a 50 bp hike would be announced by the Monetary Board on Thursday, while the rest see a 25 bp increase on the table.
“In our meeting with the BSP Governor last week, he stressed the ‘strong response’ of the BSP to the persistently elevating inflation level. An equivalent of strong response would be, to me, a 50 basis points hike,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.
BSP Governor Nestor A. Espenilla, Jr. has hinted of a “strong follow-through” policy action after rate hikes of 25bp each in May and June, in a bid to rein in inflation pressures.
Others have interpreted the change in wording as an allusion to the magnitude of the rate hike, compared to a “measured” response previously committed by the central bank chief.
Market observers have flagged the need for a more “aggressive” response from the central bank in the face of unrelenting inflation.
Alice Fulwood, associate economist at UBS, noted that upcoming trade data and second-quarter gross domestic product growth figures also due this week could also affect the BSP’s decision if these turn out to be a “big surprise.”
Still, others see the BSP raising rates by 25 bp.
“[L]ikely, the BSP will hike rates this August by at least 25 bps to especially address second-round effects even as inflation remains hostage to potential rice and oil supply shocks for now,” said Ildemarc C. Bautista, vice-president and head of research at the Metropolitan Bank & Trust Co.
Benchmark rates are currently at 3-4%. The BSP last raised rates by 50bp in one go in July 2008, which saw inflation surge to a 17-year high at 12.2% against a 3-5% target that year.

Analysts’ July inflation rate estimates, monetary policy action expectations (2018)

August 6, 2018 | 12:33 am

THE BANGKO SENTRAL ng Pilipinas (BSP) will most likely raise benchmark interest rates anew this week as inflation can be expected to have spiked further in July, analysts said in a BusinessWorld poll, with some noting there is room for a 50-basis-point (bp) hike to ease price pressures. Read the full story.

Poll sees Q2 GDP growth still robust

August 6, 2018 | 12:32 am

ECONOMISTS expect the country’s economic growth to have stayed robust in the second quarter despite faster inflation, as increased government spending and private investment offset a possible slowdown in household spending, results of a BusinessWorld poll showed.
A poll of 15 economists and analysts late last week yielded a median gross domestic product (GDP) growth estimate of 6.8% for the April-June period, steady from the pace registered in the first quarter and slightly faster than the 6.6% logged in the same period a year ago.
If realized, the figure would put the first-half average growth at 6.8%, a few points below the low end of the government’s 7-8% target for 2018.

Official second-quarter GDP data will be released on Aug. 9 by the Philippine Statistics Authority (PSA), which will also report July inflation and June factory output on Aug. 7 as well as April-June data on farm production — which has historically contributed nearly a tenth to GDP — and June international merchandise trade statistics on Aug. 8
In a note last Friday, Moody’s Analytics, Inc. gave a 6.6% estimate for second-quarter growth, citing a pickup on the back of “healthy” consumer spending fueled partly by steady inflows of remittances from overseas Filipino workers (OFW) coupled with increased private investment and government spending. At the same time, it flagged a damper in the form of “rising price pressures”.
At the same time, analysts of First Metro Investment Corp. said that GDP growth for the quarter may have hit seven on “outsized gains” in infrastructure spending, capital goods imports and manufacturing output notwithstanding the elevated prices in the same three months.
Headline inflation averaged 4.3% last semester, settling above the government’s 2-4% target for the year after the nine-year-high 5.2% clocked in June.
Similarly, inflation experienced by low-income households clocked in at 6.5% in the second quarter — its highest level in almost four years — due to accelerated price increases in utilities and staple food items.
Still, analysts polled by BusinessWorld were for the most part upbeat with government spending and private sector investment lifting growth.
Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines (UnionBank) gave an estimate of seven percent with the growth projection coming mainly from “increasing government consumption and investment.”
“The medium-term economic outlook for the Philippines remains favorable… The first six months of 2018 saw monthly government expenditure increasing as the Duterte administration implements its ‘Build, Build, Build’ program,” he said.
“The steady growth of OFW remittances in the first five months of 2018 feeds into domestic demand uptick together with the probable impact of the tax cuts accorded by TRAIN package 1,” he added, referring to the Tax Reform for Acceleration and Inclusion law.
Land Bank of the Philippines (LANDBANK) market economist Guian Angelo S. Dumalagan likewise penciled in a seven percent second-quarter GDP growth, saying: “Strong public and private investment spending likely bolstered the economy despite the limiting effect imposed by elevated inflation on consumer spending.”
“Remittances from overseas Filipinos picked up, helping temper the negative impact of rising prices,” he said, adding that “net trade likely remained in deficit, despite some improvement in exports.”
Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, estimated 6.7% GDP growth, saying: “Household spending growth should hold up well despite the rising inflation environment although a more moderate pace of growth is likely.”
He added that “[i]ncome tax reform, together with higher growth of the peso-value OFW remittances, would support some growth in household spending.”
Mr. Cuyegkeng also cited government spending as a driver, with power consumption, manufacturing and loan growth chipping in.
On the supply side, economists expect industry — particularly manufacturing and construction — to have performed well in the second quarter along with services.
Expectations on the performance of agriculture, however, were mixed.
“The broad-based expansion in services [in] the first quarter is expected to continue in the second quarter…” UnionBank’s Mr. Asuncion said, adding that manufacturing can be expected to have been robust given the boost in capital goods imports.
“The agriculture sector for Q2 seems to have been positive as much of the weather disturbances were fairly recent, thus not impacting Q2 prospects.”
Imports of capital goods, which accounted for roughly 33% of total imports, rose 11.6% to $14.055 billion in January-May, according to latest trade data.
Cid L. Terosa, economist and dean of the University of Asia and the Pacific School of Economics, put second-quarter economic growth within the 6.8-7% range, noting: “The second quarter was characterized by strong capital formation in the form of greater spending on infrastructure projects.”
“This stimulated growth in the manufacturing and service sectors,” he said.
“Also, the second quarter was marked by strong consumption spending due to school-related spending and, to a certain extent, the rise in jobs.”
Angelo B. Taningco, economist at Security Bank Corp., expected GDP to have growth 6.7% in the second quarter with “healthy output activity” in construction, manufacturing, finance, real estate and retail trade.
At the same time, he said, “the headwinds to growth include the widening trade deficit and the sluggish agricultural production,” adding that inflation may have also dampened consumer spending and export growth.
Mitzie Irene P. Conchada, vice-dean at the De La Salle University School of Economics, gave a 6.9% GDP growth estimate, but noted that agriculture growth “may have been dampened by the recent typhoon and monsoon rains.”
State infrastructure spending and capital outlays reached P352.7 billion in 2018’s first half, 41.6% more than the P249.1 billion recorded in 2017’s first six months and 4.3% more than the P338.3-billion program for last semester.
Private investment, as measured by capital formation, grew 12.5% in the first quarter from 11.4% in 2017 first three months.
OFW cash remittances grew 4.2% to $11.822 billion as of May from the $11.346 billion recorded in 2017’s comparable five months. The central bank expects remittances to touch a new all-time high and grow by another four percent this year, coming from 2017’s record-high $28.06 billion.
Manufacturing remained a bright spot with the Nikkei Philippines Purchasing Managers’ index logging 52.9 — denoting growth from the preceding month — in June, though milder than May’s 53.7 reading. The country’s index stayed above the 50 threshold that separates readings above it that denote expansion from those below it that reflect deterioration of business conditions.
The Philippine reading was also better than the 51 average in June among the seven Southeast Asian economies covered.
Furthermore, results of the PSA’s latest Monthly Integrated Survey of Selected Industries showed factory output — as measured by volume of production — posting a 21% average growth as of May, faster than the 7.3% recorded in 2017’s comparable five months.
Net exports have remained a downside to GDP, as the country posted a trade deficit of $15.766 billion in January-May with imported goods growing by 10.9% versus the five-percent contraction of merchandise exports in the same period. — Lourdes O. Pilar

Analysts’ Q2 GDP growth estimates (2018)

August 6, 2018 | 12:32 am

Tax bureau clarifies property valuation

August 6, 2018 | 12:31 am

By Elijah Joseph C. Tubayan
Reporter
THE BUREAU of Internal Revenue (BIR) recently amended rules on the valuation of real property gifts for the computation of the donor’s tax in order to ease compliance.
Revenue Regulation (RR) 17-2018, signed by Finance Secretary Carlos G. Dominguez III on July 24 but published last week, said that “the valuation of gifts in the form of property shall follow the rules set forth in Section 5,” from Section 6 previously, provided that “the reckoning point for valuation shall be the date when the donation is made.”
This means that payment of tax on such properties are now based on gross estate value according to their fair market value at the time of the decedent’s death.
Previously under RR 12-2018 — the consolidated implementing rules and regulations on imposing estate and donors taxes — the value of such property was determined by deducting claims against the estate; claims of the deceased against insolvent persons; unpaid mortgages, taxes and casualty losses; property previously taxed; transfers for public use; current fair market value of the decedent’s family home; amount received by heirs and the net share of the surviving spouse in the conjugal partnership or community property.
BIR Deputy Commissioner Marissa O. Cabreros said in a mobile phone message yesterday that the new regulation “provided ease in compliance.”
Sought for comment, Tax Management Association of the Philippines President Raymund S. Gallardo said the previous rule had “nothing to do with valuation.”
“Under RR12 -2018, valuation of properties subject to Donor’s Tax made reference to Sec. 6 which is about the computation of the net estate, which has nothing to do with valuation. Sec. 5 of RR 12-2018 is about valuation of properties included in the gross estate of a decedent,” Mr. Gallardo explained in a mobile phone message over the weekend.
“Valuation of properties subject of gratuitous transfers such as donation and inheritance follow the same principle of valuation, such that the valuation of real properties in computing the estate or donor’s tax is the higher of the fair market value (FMV) as determined by the Commissioner (which is normally the zonal value) or the FMV as shown in the values fixed by provincial or city assessors at the time of death of the decedent or date when the gift was made,” he added.
Republic Act No 10963, or the Tax Reform for Acceleration and Inclusion law, simplified estate and donor’s taxes at fixed rate of six percent.
“For the purposes of prescribing real property values, the Commissioner is authorized to divide the Philippines into different zones or areas shall, upon consultation with competent appraisers, both from the private and public sectors, determine the fair market value of real properties located in each zone or area,” read the regulation.

DoF-backed mining tax reform filed in House of Representatives

August 6, 2018 | 12:30 am

A LAWMAKER has filed a mining tax reform bill in the House of Representatives that forms part of the second tranche of reforms designed to make the country’s taxation regime more equitable while generating additional revenues to support the government’s infrastructure development program.
Nueva Ecija (1^st District) Rep. Estrellita B. Suansing filed House Bill No. 7951 on July 24 royalties for all large-scale and small-scale metal and non-metal mines, whether or not they are declared as mineral reservations.
The bill inserts a new section in the National Internal Revenue Code of 1997 that proposes a three percent royalty based on the market value of the gross output of mines located outside mineral reservations on the first three years of effectivity of the measure that will be increased to four percent in the fourth year and five percent in the fifth year.
It retains the five percent royalty based on the market value of the gross output of mineral products extracted or produced within mineral reserves, exclusive of all other taxes.
Finance Undersecretary Karl Kendrick T. Chua said that Ms. Suansing’s bill adopted the Department of Finance’s (DoF) proposal, which was submitted to both chambers of Congress on June 26.
“Presently, for large mines, mining contracts offering varying fiscal regimes and, therefore, fiscal burden are differentiated. The fiscal regime depends on whether the mine is operating on a mineral reservation and whether the mine is operated under a Mineral Production Sharing Agreement (MPSA) or Financial and Technical Assistance Agreement (FTAA),” said Ms. Suansing in her explanatory note.
She said that almost all mining contracts are under MPSAs, while those in mineral reservations are composed mainly of nickel mines and that all FTAA agreements are for mines outside mineral reservations.
“A rationalized and a single fiscal regime applicable to all mineral agreements and FTAA is sought as it promotes fairness. The proposal under the bill shall be applicable to all existing and prospective large metallic, non-metallic and small-scale mines, and shall be applied to all mines regardless of whether the mine is located outside or inside a mineral reservation,” she added.
Ms. Suansing said the proposal “is structured to satisfy the objectives of government for a reasonable increased share without comprising the mining sector’s need for reasonable return on its investment.”
The bill also proposes to limit interest expense deductions of mining contractors “in order for the businesses not to depend on excessive debt funding which would result in high interest expense deduction, and thereby reducing corporate tax liability.”
“If a mining contractor has a debt-to-equity ratio in excess of 1.5 to 1 at any time during the taxable year, a deduction is disallowed for the interest paid by the contractor during that year on that part of the debt that exceeds the 1.5 to 1 ratio for the period the ratio was exceeded,” the bill read.
Existing mineral agreements and FTAAs that do not provide terms and conditions resulting from repeal or amendment of existing laws or regulations will continue to be governed by their existing terms and conditions.
The same bill retains the corporate income tax for mining, but proposes an additional government share “when the basic government share is less than 50% of the net mining revenue,” which is the difference between the 50% of net mining revenue and the basic government share during the calendar year.
The government currently gets an additional share only under the FTAA regime.
The comprehensive mining tax reform is part of the so-called Package 2+, which also includes further hikes in alcohol and tobacco excise taxes.
Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act, had already increased the excise tax on non-metal and metal minerals to four percent of the gross output from two percent when that law — the first of up to five planned tax reform packages — took effect on Jan. 1.
To recall, the Finance department under previous administration had proposed to the 16^th Congress then to increase the government’s share in revenues from mining operations, but that measure fell through due to lack of time. — Elijah Joseph C. Tubayan

1...11,32611,32711,328...13,401 Page 11,327 of 13,401