Timely adjustment of minerals tax

A common observation made by critics and noncritics alike of the mining industry is that the 2-percent excise tax on minerals is too low. To understand such a perspective, it will help to know that the last adjustment in the rates of the excise tax was made way back in 1994. In fact, the change in rates that happened more than two decades ago was a reduction of prevailing taxes on minerals extracted. Again, to better understand the decision made, it should be noted that decreasing the tax on minerals was part of the Ramos administration’s effort to attract foreign investments, particularly in mining.

Thus, the minerals tax hike introduced by the Senate in its version of the Tax Reform for Acceleration and Inclusion (TRAIN) bill must be a welcome measure to those believing that an adjustment is in order. More importantly, the proposal to increase the tax from 2 percent to 4 percent comes at a time when the government is generating revenues to fund its massive infrastructure program. Certainly, support must be given to the Duterte administration so that the country will finally attain the infrastructure necessary to boost and sustain development.

As with any tax measure, the increase in the minerals tax must be accompanied by safeguards to ensure proper collection and disbursement. Being able to reconcile the taxes paid by private corporations with what the government receives, as undertaken by the Extractive Industries Transparency Initiative (EITI), is definitely a huge step in the right direction. Because of the EITI, policymakers and other stakeholders can now readily get their hands on data showing how much a mining company or the entire extractive industry paid in taxes, as well as the corresponding collections of the different government agencies. The availability of data will be complemented by the gathering of public, private and civil society stakeholders through road shows that are intended to identify policy gaps in furtherance of transparency.

To advance proper disbursement, another aspect of mining taxation that should get attention is the timely remittance of the share of local government units. Clearly, the spirit of the Local Government Code in mandating the share of LGUs in the resources utilized within their jurisdictions is brought to naught with well-documented delays in remittance that take several years. There must be a mechanism to facilitate the LGUs’ immediate receipt of their share through an amendment of the law or by some executive fiat.

But whatever final proposal on increasing the mining tax comes out of the bicameral conference process, there must be due consideration of the intricacies of mining operations, as espoused by Carlo Arcilla in his policy paper, “Mining in the Philippines: Problems and Suggested Solutions,” thus:

“At the root of this problem is that mining companies can have very different business models. … An exhaustive study that considers these complexities and strikes a balance in imposing taxes is needed—too many taxes will kill the industry whereas too little gives windfalls. But in fact, such windfalls do not often consider the costs borne by the mining and exploration companies during exploration and development that need to be recovered.”

In this regard, the adjustment to the minerals tax may be timely, but, without careful consideration, the mining industry may not be able to fulfill its supposed value to our economy. The words of Carlos Primo David in Stratbase ADR Institute’s “Thinking Beyond Politics” are worth quoting:

“It is also necessary to position mining as a crucial cog in the country’s industrialization strategy. Linking mineral extraction to processing and to other downstream industries, like manufacturing, will enhance job creation, boost revenue streams, and, ultimately, contribute to the economy. The development of allied industries, however, needs a business environment that is competitive and attractive.”

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Dindo Manhit is founder and managing director of Stratbase Group.