Proposed Mining Fiscal Regime for TRAIN

The administration is designing a new comprehensive tax reform known as TRAIN or Tax Reform for Acceleration and Inclusion (SB 1592) which includes reforms in the mining fiscal regime. Mining has failed to contribute significantly to government revenues. Based on figures reflected in the 2016 Ph-EITI Report, large scale metallic mines have contributed 1.1% to GDP. It is timely that TRAIN includes reforms in the mining regime to increase government share from the extractive industry.
 
TRAIN proposes increase in excise tax from 2 percent to 4 percent based on market value of gross output. While other revenue streams remain, royalty payments in mineral reservations at 5 percent, indigenous people’s royalty at 1 percent, and 30 percent of net taxable income as corporate tax.
 
Bantay Kita recommends imposing 5 percent mineral royalty payments for all mining operations based on market value of gross output. The current fiscal regime imposes 5 percent royalty payments only to mining operations situated in mineral reservations. To date, only four provinces have been declared by government as mineral reservations: (1) Zambales in Central Luzon, (2) Surigao del Norte, (3) Surigao del Sur, and (4) Dinagat Islands in the CARAGA Region. The government should maximize its gains from mineral resources. Extracting minerals is a one-time opportunity to improve people’s lives. 

​	RA 7942 (Philippine Mining Act of 1995)	​SB 1592 (TRAIN)	SB 1592 (TRAIN) Proposed Changes
​Royalty Payments	For Mineral Reservation Areas: 5 percent (based on market value of gross output)	​For Mineral Reservation Areas: 5 percent	​5 percent for all operating mines
​Indigenous People Royalty	​1 percent (based on market value of gross output)	​1 percent	1 percent
​Excise Tax	2 percent (based on market value of gross output)	​4 percent	4 percent
Corporate Tax	30 percent of net taxable income	​30 percent of net taxable income	​30 percent of net taxable income

T​he effective tax rate (ETR) is the percentage of government’s share from total profits before tax.
 
While, the average tax capture (ATC) is percentage share of government payments in gross value. With TRAIN and imposing the 5 percent royalty to all mining companies gives an ETR for all commodities and sites and ATC, 46% and 19% respectively.
 
Using actual figures from the 2016 PH-EITI Report, the increase in excise tax from 2 to 4 percent, and imposition of 5 percent royalty on all mining operations will provide the government additional Php 4.3 billion.

​Recommendations

• To simplify and increase tax collection, collect mining royalties from all mining operations. Currently, only the mining operations in mineral reservations pay the mining royalty. Based on 2014 figures, this will generate an additional 2.5 billion pesos over the collection of 2 billion pesos.
• The 5% mining royalty should be computed based on the gross value of the minerals when sold (like the excise tax) not on the value of the minerals when extracted (which is the current practice). Currently, miners would mine at low price to reduce royalty and then sell when prices are high. Government does not benefit from this practice.  
• Only 12 of the 30 mining companies (39%) operating in 2014 pay the 5 percent royalty to the government.
• Imposing 4% excise tax (per SB 1592) from the current 2% and a 5% royalty on all mining companies will increase the ETR (government share) from 36% to 46%. Based on 2014 figures, this will generate an additional Php 4.3 billion in revenue.