Package 2+ of the Comprehensive Tax Reform Program includes proposed reforms on mining and sin taxes. Both proposals complement the enacted TRAIN law to generate additional revenues; make the tax system simpler, fairer, and more efficient; and align with President Duterte’s priority programs on social and environmental protection.
House of Representatives
House Bill (HB) 8400 was approved on 3rd and final reading last November 12, 2018. The salient features of the bill are the following:
- Impose a differentiated royalty for mines inside and outside mineral reservations,
- Impose windfall profit tax based on profit margin,
- Exempt pollution control devices from real property tax, and
- Register small-scale mining with the Mining Board, and Mines and Geosciences Bureau.
Senate President Sotto filed the DOF proposal under Senate Bill (SB) 1979.
Proposed mining taxation
The Department of Finance proposes to implement a single fiscal regime applicable to all mineral agreements to promote fairness.
The mining industry is currently under two fiscal regimes based on the mineral agreements with the national government: Mineral Production Sharing Agreement (MPSA) and Financial or Technical Assistance Agreement (FTAA).
Under MPSA, the government grants the contractor exclusive right to conduct mining operations within a contract area and shares in the gross output. The contractor provides the financing, technology, management and personnel necessary for the implementation of the agreement.
FTAA, on the other hand, is an agreement for large-scale exploration, development, and utilization of mineral resources between a contractor and the government. Below is the summary of fiscal regimes of each mineral agreement.
|Type of tax||MPSA||FTAA|
|Corporate income tax||30% of taxable income||30% of taxable income|
|Excise tax||4% on gross revenues||4% on gross revenues|
|Ancestral domain royalty to indigenous peoples||Minimum of 1% of gross revenues, if inside ancestral domain||Minimum of 1% of gross revenues, if inside ancestral domain|
|Local business tax||Rates vary depending on the LGUs, max of 2% of gross receipts||Rates vary depending on the LGUs, max of 2% of gross receipts|
|Real property tax||Rates vary depending on the LGUs, max of 2% of assessed value||Rates vary depending on the LGUs, max of 2% of assessed value|
|Royalty||5% of gross revenues if inside mineral reservations||5% of gross revenues if inside mineral reservations|
|Windfall taxes||None||An additional government share is collected if the basic government share is less than 50% of the net mining revenue. The additional share is computed as the difference of the 50% of the net mining revenue and the basic government share during the calendar year.|
Salient features of mining taxation
Retain existing impositions, such as corporate income tax, excise tax, and ancestral domain royalty, and local business tax.
Impose royalty on all metallic and non-metallic minerals, small- and large-scale mines, whether inside or outside mineral reservations:
- Retain the 5% royalty on gross output for mines located inside a mineral reservations
- Phased-in royalty (see below) on gross output for those outside mineral reservations.
|Year||Royalty (in %)|
|1 to 3||3|
Impose an additional government share on all metallic and non-metallic minerals, small- and large- scale mines whether inside or outside mineral reservations.
Impose thin-capitalization and ring-fencing to control tax avoidance.
- Thin-capitalization is a policy to put a limit on the excessive debt funding of businesses in their operations, which would result in high interest expense deductions and thereby reducing corporate income tax liability.
- While ring-fencing is a policy to prevent consolidation of income and expenses of all mining projects by the same taxpayer, resulting in losses from other mining projects.