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Correcting Misconceptions on Mining Revenue Sharing in the Philippines

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Information about Correcting Misconceptions on Mining Revenue Sharing in the Philippines
News & Politics

Published on March 3, 2014

Author: ronnierecidoro

Source: slideshare.net

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REVENUE SHARING IN MINING: Is the Country getting its FAIR SHARE?

In 2011, the MGB reported that all mineral products extracted in the Philippines had a Gross Production Value of Php163.2 Billion.

In his last SONA, the President noted that in 2010, of the Php145 billion worth of minerals extracted by mining companies, government received a mere “balato” of Php13.4 billion— approximately 9% of the total value.

How the President Sees It. 13.4 Gross Production (Value) Total Taxes 145 “Balat

Clearly, before we even start to look into how to increase government’s share in mining revenues, there is a need to correct President Aquino’s MISCONCEPTIONS about the taxes we pay.

#1 The Php145 Billion Gross Production Value (GPV) for 2010 should be disaggregated, as follows: GROSS VALUE (in Billion Pesos) Large Scale Metallic Mining 69.1 (47.5%) Small Scale Gold Mining 42.9 (30%) Non-metallic Mining 33.3 (22.5%) TOTAL 145.3  to show that small scale mining accounts for about 30% of the total value of minerals produced.

#2 The cost of production must also be considered and deducted from GPV to arrive at NET REVENUE: GROSS VALUE PRODUCTION COST* NET REVENUE Large Scale Metallic Mining 69.1 41.5 27.6 Small Scale Gold Mining 42.9 12.9 30.0 Non-metallic Mining 33.3 16.6 16.7 145.3 71.0 74.3 Total ---------------------------------*Assumes a production cost of 60% for metallic mines & 50% for non-metallic mines.

#3 Taxes, fees, and royalties collected by government should be computed against net revenue: Net Revenue Taxes, Fees, and Royalties Gov’t Share 27.6 11.2 40.1% 12.9 30.0 NO TAXES PAID 33.3 16.6 16.7 5.9 35% 145.3 71.0 74.3 17.1 23% Gross Value Production Cost* Large Scale Metallic Mining 69.1 41.5 Small Scale Gold Mining 42.9 Non-metallic Mining TOTAL ---------------------------------*Assumes a production cost of 60% for metallic mines & 50% for non-metallic mines. 0%

2010 Mineral Production (Php145.3 Billion) 90 80 11.26 70 Corresponds to 40% of large scale mines’ net revenue 60 27.6 50 0 0% 40 30 20 30 41.5 10 5.9 16.7 12.9 16.6 Small Scale Gold Mining Non-metallic Mining 0 Large Scale Metallic Mining Production Cost Net Revenue Taxes Paid

How We Compare: Comparison of Country Effective Tax Rates (% of Gross Revenue) 20.0 18.0 16.0 14.0 12.0 10.0 18.0 8.0 14.5 6.0 18.7 18.3 16.0 15.2 18.0 16.9 15.4 14.9 13.6 13.0 4.0 2.0 0.0 not in AD and MR in both in AD in MR AD and MR (new law) (9) MRRT NonMRRT Argentina Chile Peru Peru

For every dollar produced by Large-Scale Mining: • 85% of operating cost is sourced from local resources: ore, power, labor, cement, etc. • Only 15% of operating cost are from importation: spare parts, oil, consumables, etc.

MINING: Not your ordinary business • As a global industry, mining requires an investment environment where risks and rewards are comparable from country to country; • Countries that possess conducive and stable business environments are normally sought after by investors that can undertake and manage world-class mining operations.

Mining has an inordinately long gestation compared to other business ventures

The Correct Revenue Sharing Picture 11.2 74.3 17.1 5.9 Net Revenue from Mining Large Scale Mines Non-Metallic Mines

Proper Interpretation Gross Value Production Cost* Net Revenue Taxes, fees, and royalties Gov’t Share Large Scale Metallic Mining 69.1 41.5 27.6 B 11.2 B 40.1% Small Scale Gold Mining 42.9 12.9 30.0 B No Taxes Paid 0% Non-metallic Mining 33.3 16.6 16.7 B 5.9 B 35% Total 145.3 71.0 74.3 B 17.1 B 23% Without Considering SSM 102.4 58.1 44.3 B 17.1 B 39% *Considering 60% production cost for metallic mines & 50% for non-metallic

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