Beyond GDP: Total

Contribution of Mining

StandFIRM Leadership Workshop Tiara Oriental Hotel, Makati City

April 01, 2017

Bienvenido Oplas Jr.

President, Minimal Government Thinkers

Columnist, BusinessWorld

Fellow, SEANET, Stratbase-ADRi

1. Mining provides small contribution

to GDP, only P70 B/year in GVA.

2. Mining tax payments are small,

only P3B/year.

3. Employment share of mining small

only around 100,000 workers.

National taxes * Corporate income tax (CIT) * Personal income tax of personnel & officers * Value added tax (VAT) * Withholding tax (WHTs) on dividends, WHT on interest, WHT on royalties, on service fees * Excise tax on minerals and imported goods * Customs duties * Capital Gains tax * Documentary stamp tax * Improperly accumulated earnings tax (IAET) * Wharfage fees * Royalty for Indigenous People (IPs) * Royalty in mineral reservation * Vehicle registration tax * Special allowance under the Mining Act * Various documents/permits required by MGB,…

Local taxes & fees * Local business tax * Real property tax (basic and SEF) * Registration fees * Occupation fees * Community tax * Mining operations tax * Environmental fees * Local wharfage fees * Regulatory/Administrative fees * Extraction fees on mineral lands * Rental fees * Mine waste and tailing fees * Mayor’s permit fee * Barangay permit * Fire department permit, sanitation permit * Provincial permit, other local taxes and fees

Mandatory Expenditures * Annual Env’l Protection & Enhancement Prog. (EPEP) * Social development and management prog. (SDMP) * Community development program * Environmental work program (EWP) * Safety and health program * Special allowance to claim owners & surface right holders

Environmental funds * Rehabilitation cash fund * Mine monitoring trust fund * Mine waste and tailings fees reserve fund * Final mine rehab. & decommissioning fund * Environmental trust fund * Mine rehabilitation fund (MRF) * Others

4. Mining results in environmental damage while yielding minimum benefits. Wrong. See different taxes, royalties, regulatory fees, mandatory contributions to society

5. Open pit mining is very destructive and must be banned anywhere.

Wrong. It looks destructive only in mining stage, after the minerals are mined out, the area is

rehabilitated. Another option – keep open pits open, do not cover with soil and plant trees.

Keep them as new lakes: tourism, water sports, fishery, irrigation, hydro power, other uses.

Source: Dr. Roy Spencer, UAH

Climate change means warming-

cooling-warming-cooling cycle. After

global warming, we prepare for cooling.

“Multiplier effect” of mineral raw materials.

Contribution of mining in PH economy looks small, less than 1% of

GDP, only 0.5% of total employment, mineral exports just 5% of total

exports.

Because mining’s multiplier effect is not counted. Almost all industrial

(manufacturing, construction) and services (transportation, telecom, IT,

etc.) activities use mining products. No mineral products means almost

no industrial production, very little services sectors. (Public transpo will

be horses & carabaos, not cars, buses or trains)

Analogy: GVA of poultry and pork/meat is small, maybe around 1% of

GDP. But without chicken and pork, there will be little or no activities in

many other sectors -- restaurants, litson manok/liempo stalls, chicken

cubes/fillet, other manufactured and processed food.

1. Large-scale mining covers a

huge area of the Philippines.

Wrong. Only 2.3% of TLA

covered by mining permits, of

which only 0.27% actively mined.

2. Mining can stop in PH but

continue in other countries.

Wrong. Mining is either good or

bad; if bad then mining should

stop worldwide. If good abroad

then good practices should be

adopted here.

3 DENR Sec's closure of

mining firms follows rule of

law.

Wrong. Sec. Lopez disregarded

procedures, even recommends.

of her technical staff. Rep.

Josephine Sato: “We are the

legislature; if you’re not happy

with the law tell us we will review

and revise if necessary but you

can’t legislate on your own...”

4. Large mining is the most erosion-inducing activity in

the country.

Wrong. Very often, it is deforestation or conversion of forest

land into pasture land, agri land, comm’l land, or simply

regular cutting of trees in public forest land.

Top right photos are mountains in Aguilar-Bugallon-

Labrador, Pangasinan, then a mountain behind the NGCP

station in Labrador, Pangasinan.

Below right photos: sugarcane farm in Negros; a river in

our barrio in Cadiz City, Negros Occ. Was a wide river but

siltation from eroded soil of sugarcane farms narrowed the

river to only 1/3 to ½ of its width some 30 years ago.

Below, Pasig River draining into Manila Bay. Photo

grabbed from JB Baylon.

5. More mining areas result in more poverty.

Generally wrong. Top 25 poorest provinces in Philippines http://www.neda.gov.ph/wp-content/uploads/2013/09/CHAPTER-10.pdf

Of these, only 5 host big mining companies (at least 4,000

has): Zambo del Norte (2 firms), Surigao del Norte (5 firms),

Surigao del Sur (3 firms), Mindoro Occ. and Or. (2 firms).

These 21 provinces host big mining companies (at least

4,000 hectares) not in the Top 25 poorest: Zambo del Sur

(Siennalyn Gold, TVI, 168 Ferum, Vilor), Sultan Kudarat

(GRCO Isulan), Agusan del Norte (Agata), Davao Or.

(Hallmark, Austral-Asia Link, Dabawenyo Minerals, Sinophil,

Oro East), Dinagat Islands (East Coast), Compostela Valley

(Napnapan), Sarangani (Hard Rock).

Capiz and Iloilo (Teresa Marble, Parvis Gold,), Samar

(Alumina, Bauxite), Leyte (Explosive Consult., Fastem

Constr., Strong Built), Palawan (C. Palawan, Palawan Star,

Pyramid Hill, Narra Nickel).

Quezon and Camarines Sur (VIL Mines), Benguet (Philex),

Zambales (Mina Tierra, Eramen), Cagayan (Peniel, JVDC,

T&T, J&M), Nueva Vizcaya and Quirino (Oceana Gold),

Ilocos Sur and Pangasinan (Altamina Exploration).

6. Open pit mines are destructive and not done in

developed countries.

Wrong. 5 biggest and deepest open mines in the world

1. Bingham Canyon, Utah, USA -- roughly 4 kms wide and

over 1.2 kms deep.

2. Mir Diamond mind, E.Siberia, Russia – 1.2 kms. diameter

and reaching depths of 525 meters.

3. Kalgoorlie Super Pit, Australia -- roughly 3.8 kms long, 1.5

kms. wide and approx. 600 meters deep.

4. Kimberly Diamond Mine, S. Africa -- perimeter 1.6 kms.,

200 meters deep.

5. Diavik Diamond Mine, Canada.

Notice that big communities develop around a big mining pit.

The pit came first, the communities follow, not the other way

around.

Some reports, Feb-August 2015

Feb-March 2017

Source: PWC, Corporate income taxes, mining royalties and other mining taxes: A summary of rates and

rules in selected countries, June 2012,

Australia China India Indonesia Kazakhstan Philippines Top rate, Corp. income tax (CIT)

30% 25% 32.4% (local), 42.05% (for.)

25% 25.2% 30% nat’l, + 2% mun., 3% cities

Tax, Ore assets Life of mine

Over valid pd. mining license

25.0% 0% n/a varies

Tax, Buildings 2.5% 5% 5%, 10%, 100%

5% max 10% depends

Restrictions on use of tax losses

Yes 5 years 8 years 5 years 10 years 3/5 years

VAT charged on exports

No No No No No Yes

Ave time for VAT refund

< 1 year < 3 months < 1 year > 1 year < 6 months > 1 year

WHT Dividends 30% 10% 0% 20% 15% 15%, 30% WHT Interest 10% 10% 21% 20% 15% 20% WHT Royalties 30% 10% 10.5% 20% 15% 30% WHT Service fees

5% varies 42% 20% 20% 30%

Other payments na License fees License fees, Deadrent assess

License fees, Deadrent land, bldg tax

Deadrent Deadrent, occupation fees, mine waste & tailing fees, community tax, filing fees,…

Mining taxation, selected Asian economies

Pitfalls of high taxation philosophy

• Deadweight loss arises because of monopolistic pricing incl. govt taxation,

externalities, price controls.

• At higher tax, people will either produce less even if a product is publicly

needed, or they underdeclare output and pay lower taxes.

• Example: if taxes (CIT + VAT + royalties + LGUs’ fees + …) are equiv. to 6% of

gross mining revenues, mining output is 12 M tons.

• Raising the tax to 10% will result in that shaded area. Supposedly higher govt.

revenues but lower output to society as players willing to supply only 8 M tons.

And govt. will collect less. And there are fewer jobs…

(a) Deadweight loss

(b) the higher the tax rate, the lower the tax revenues/collection

Arthur Laffer (and JM Keynes) illustrated this…

As tax rates approach 100%, private enterprises will either stop working, or they work but

understate output; tax assessors/collectors allow it in exch. for personal and financial gains.

Model copper mine: comparative effective tax rates (ETR)

EITI, 2009. Advancing the EITI in the Mining Sector: A consultation with stakeholders

https://eiti.org/files/MINING%20Compressed.pdf

ETR = all

payments to

governments /

value of gross

or pre-tax

profits

http://ph-eiti.org/

Mining Taxes 2014: EITI data P10.88 B, MGB data P32.75 B…

1. Aside from various taxes, fees, royalties,

mandatory funds for big mining firms, overall

tax burden in PH among highest in E. Asia.

2. Endless debate in mining fueled by

endless myths like mining lands are huge,

mining taxes are small.

3. More taxes and permits mean lower

output, more deadweight loss, lower

revenues in the Laffer curve.

4. Beyond GDP, contribution of big mining is

large – direct and indirect employment; taxes,

fees, royalties, mandatory funds.

5. Issues until 2015 were on higher mining

tax. By 2016-17, moved to mining closure,

bigger uncertainties.

6.

Concluding Notes