Gomez is a trustee of Action for Economic Reforms and executive director of Bantay Kita. This piece was published in the October 25, 2010 edition of the BusinessWorld, pages S1/4 to S1/5.
RA 7942, “An Act Instituting a New System of Mineral Resources Exploration, Development, Utilization and Conservation” was passed in 1995 and has since been touted as the enabling law for the revitalization of the mining industry.
Among the reasons put forward for the move to “revitalize” the industry were : its potential contribution to economic recovery and growth, to exports and foreign exchange earnings, to employment and to revenues that the government could utilize for development goals.
With the exception of exports, these expected contributions to the Philippine economy, have been, at best, modest. From 2005 to 2009, the mining industry accounted for an average of 4.2% of total Philippine exports. Its contribution to GDP during the same period, averaged at 1.2% and to total employment, 0.4 %. In addition, revenue statistics show that the actual contribution of the mining industry to government revenues is decidedly unspectacular.
Perhaps one reason for the industry’s unspectacular performance is its relatively privileged position. Like other industries, mining companies are subject to value-added taxes, other percentage taxes such as on interest earnings for bank deposits as well as documentary stamp taxes. There is also a 2% excise tax levied on their production of minerals and/or mineral products. Like other priority industries, it enjoys a number of incentives under the Omnibus Incentives Code of 1987, EO 226 and in addition, other incentives are listed in its own RA 4972 (only a few of which will be mentioned here). However, mining companies are entitled to an income tax holiday for the first 6 years of operation (Omnibus Incentives Code). Among the incentives listed in RA 7942, is the deduction of the first 5 years of their labor expenditures from tax liabilities.
These incentives may explain why the total amount of taxes, royalties, fees and other charges paid by the industry to national government agencies, from 2005 to 2008, averaged at no more than 1.1% of the total collections of the BIR. The income tax holiday is a hefty incentive. During the same period, taxes on profit and income accounted for 58% of total BIR collections. On the other hand, excise taxes accounted for only 9% of the total. Mining excise taxes, specifically, accounted for only 1 % of the excise taxes collected by the BIR. In short, forgoing taxes on income and profits and relying on the 2% excise tax levied on mineral production is irrational since the tax yield becomes insignificant, in this case, representing less than one –tenth (1/10) of one percent of total BIR collections.
To the local governments, aside from business taxes, mining companies pay occupation fees ranging from P 10 per hectare (during the exploration stage) and P 50 to P100 per hectare (during the development and operation stages) , depending on the type of mineral agreement they have entered into with the government. Although LGUs receive 40% of national government revenues from taxes as well as other revenues for the exploitation of natural wealth, their own collection accounted for an average of 6% of the total collections from the industry (2005 to 2009).
Revenues from the industry display significant fluctuations. Since the excise tax is levied on the value of production, fluctuations in the prices for ores in the world market, affect the amount of taxes that can be collected. For example, from 2005 to 2007, world prices of copper, gold, silver and nickel increased by 102.5%, 61.4%, 90.06% and 140.57 % respectively. In the same time period, revenues from the industry (taxes, fees, royalties) increased by 85%. But as copper and nickel prices dipped in 2008 and 2009, even though gold and silver prices continued to increase, 2008 revenues were 27% less than in 2007.
What other revenues are sourced from the industry? The question cannot be answered simply. Aside from those collected by the BIR, the industry pays national government agencies for the utilization of national wealth, etc… It makes payments to LGUs as well as royalties to owners of land, private individuals or indigenous communities. An initial reading of the law and its IRR (implementing rules and regulations), renders a complex tangle of revenue obligations and may give the impression that the industry is burdened with these.
However, a study by Action for Economic Reforms, has estimated that, from 1997 to 2007, the mining industry contributed no more than 7.5% of the value of its production in taxes and other charges, paid to both local and national government units. In the last five years, the government’s revenue effort (ratio of revenues to GDP) was highest in 2007, at 17.1% and lowest in 2009 at 14.6%; on the average it is at 15.8 %, still more than twice the ratio of the mining industry.
Given the low government revenues derived from the industry, perhaps it is time to assess the gains and losses of a “revitalized” mining industry. Such a review should take into consideration long-term environmental costs; and the social strife and conflict in indigenous peoples’ and other communities that ensue from the presence of mining companies. Only then can government decide what to do for the industry as well as for the country.