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MANILA - A team from the International Monetary Fund tasked to look into the appropriate tax scheme for the mining industry has recommended that the Philippines overhaul its fiscal regime for big projects, particularly those open to foreign investors.
In a report, the IMF mission team said the financial and technical assistance agreement should be accompanied by a “10 percent surcharge on cash flow after corporate income tax but before financing.” This replaces the current 50 percent share the government gets from the FTAA.
“This would lower the government take on less profitable projects and make the overall fiscal regime less regressive,” the report said.
The IMF mission team also recommended combining the existing 5 percent royalty and the 2 percent excise tax on mineral production. The combined royalty would be imposed on all mines, and would be collected by the Bureau of Internal Revenue.
“This would ensure early revenue to the national government to be shared with local governments,” the report said.
Since the higher royalty rate on top of other production-based taxes would render the Philippines uncompetitive, the mission team also recommended providing companies a tax credit against their income tax for any royalty paid above 5 percent.
The report also called for the following reforms:
- Repeal of the incentives provided by the Board of Investments and the Mining Act of 1995;
- Consolidation of domestic tax rules in the National Internal Revenue Code, with a separate section containing all mining-related taxes;
- Put up a mine rehabilitation fund against which companies can charge their expenses;
- Restrict the use of debt through a thin capitalization rule;
- Enact a law providing for continuous appropriation of local government units’ share in mining; and
- Creation of joint monitoring commission to oversee distribution of revenues to LGUs.
The IMF mission team report was the result of a request by the Aquino administration for advice on measures that would increase government revenue from the mining sector.
Last month, the government issued Executive Order No. 79 outlining its new policy on mining. The Palace directive extended a moratorium on new mining permits until such time a new revenue-sharing scheme between government and mining companies is put in place.
The government wants to rework the revenue sharing scheme, as taxes from mining comprise only 0.61 percent of total tax revenues, and 5.1 percent of total mining production.
Earlier proposals called for issuing an administrative order that extends the 5 percent royalty, which applies only to mineral reservations, to all other mines, and for hiking the excise tax from 2 percent to 7 percent.
Both proposals however would jack up production-based taxes, thus making the Philippine tax scheme unattractive for projects that earn marginal returns, the IMF mission team said.
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