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FISCAL REGIME OF MINING PROJECTS
UNDER THE PHILIPPINE MINING
ACT OF 1995
TWO COMMON TYPES OF MINING RIGHTS
• A 25 year contract renewable for same period• Granted exclusively to Filipino corporation (minimum 60%
Filipino-owned) & individuals• Maximum area of 16,200 hectares for exploration• Maximum of 5,000 hectares for commercial production
(Basis: Chapter V of the RA 7942)
1. Mineral Production Sharing Agreement
2. Financial or Technical Assistance Agreement• An 25 year contract renewable for same period
• Allows up to 100% ownership by qualified foreign corp.
• Minimum construction/development cost of US$50 million
• Minimum authorized capital of US$4 million • Maximum of 81,000 hectares for exploration• Maximum of 5,000 hectares for commercial
production (Basis: Chapter VI of RA 7942)
FISCAL FRAMEWORK FOR AN MPSA AND FTAA
MPSA Fiscal Contribution =
Basic Gov’t Share + Other Taxes And Fees
FTAA Fiscal Contribution =
Basic Gov’t Share + Additional Govt Share
BASIC GOVT’S SHARE:
OTHER PAYABLE TAXES & FEES:
Excise tax on minerals
(Basis: Chapter XXI Section 212 of DAO 96-40)
National direct + Local direct + Payment to other
taxes and fees taxes and fees Filipinos (Basis: Existing taxation laws)
MPSA
A. National taxes / fees
• Income tax
• Value-added tax
• Royalties on minerals (in mineral reservations)
• Capital gains tax
• Tax on interest payment to foreign loan
• Tax on foreign stockholders dividends
• Documentary stamp tax
B. Local taxes/fees• Business tax• Real property tax• Registration fees• Occupation fees• Community tax• Other local taxes
C. Payment To Other Filipinos
• Special allowance as defined by the Mining Act
• Royalties to indigenous cultural communities
MPSA - OTHER PAYABLE TAXES & FEES
LEGAL/CONSTITUTIONAL BASIS OF FTAA
The 1987 Constitution provides that:“The Government may enter into agreements with
foreign-owned corporations involving FTAA for large scale exploration, development and commercial utilization of mineral.”
(Basis: Chapter XII of Constitution) R.A. No. 7942 (Mining Act of 1995)
• A qualified applicant may enter into an FTAA directly with the Government through the DENR
(Basis: Chapter IV, Section 33 of RA 7942)• An FTAA shall be negotiated by the DENR and
executed and approved by the President (Basis: Chapter IV, Section 36 of RA 7942)
RATIONALE FOR AN FTAA
Large scale mining projects:• require huge capital and sophisticated technology;• involve long gestation period from exploration to
production; Due to these factors, only a limited no. of Filipino
investors invest in large scale mining projects; To promote large scale mining, there is a need for
direct foreign investments; The Philippines has to compete with other
countries for direct foreign investment; The FTAA scheme opens up opportunities for direct
foreign investments
SALIENT FEATURES OF AN FTAA
Allows maximum 81,000 hectares for exploration subject to annual area relinquishment;
Final mining area can be up to 5,000 hectares;
Allows maximum 5 year cost recovery period during which govt. waives tax payments;
Requires minimum authorized capital of US$ 4 million or its peso equivalent upon approval;
Obliges minimum ground expenditures set by law.
FTAA MILESTONES
025 years
Exploration Period (max 4 yrs.)
Recovery Period (max 5 yrs.)
Pre-Feasibility Study Period (max 2 yrs)
Feasibility Study Period ( max 2 yrs)
Construction & Development
Period (max 3 yrs)
Operating Period (Remaining yrs)
25Pre-operating ExpendituresPayment of Govt. share
YEARS
FRAMEWORK FOR FISCAL REGIME OF FTAA
• Achieve an equitable sharing among the Government, both national and local, the Mining Contractor and the concerned communities of the benefits derived from mineral resources development; and
• Ensure a fair, equitable, competitive and stable investment regime for the exploration, development and commercial utilization of minerals.
LEGAL BASIS OF THE GOVT’S SHARE FROM AN FTAA
“The Government share in an FTAA shall consists, among other things, the Contractor’s corporate income tax, excise tax, special allowance, withholding tax due from the Contractor’s foreign stockholder’s arising from dividends or interest payments to the said foreign stockholder in case of a foreign-owned corporation and all such other taxes, duties and fees as provided for in existing laws.”
(Basis: Chapter XXI Section 214 of DAO 96-40)
FISCAL REGIME OF AN FTAA
50% - 50% SHARING
OF THE
NET MINING REVENUE
(AFTER RECOVERY OF PRE-OPERATING EXPENSES)
Net Mining Revenue =
Gross Output
less
Deductible Cash Expenses
FISCAL REGIME FOR FTAA. . .
Gross Output = means the actual market
value of the minerals or mineral products
from its mining area as defined in the National
Internal Revenue Code
Section 3(v) of the Mining Act
GROSS OUTPUT
refers to the cash operating expenses incurred by the Contractor during a calendar year as follows:
1. mining, milling, transport and handling expenses
2. general/administrative expenses
3. environmental expenses
4. expenses on development of host/neighboring community including development of geoscience and mining technology
5. royalty payments to claimowners/surface owners
6. continuing exploration/mine development expenses
7. interest expense on loans
DEDUCTIBLE CASH EXPENSES
Basic Government Share – all taxes, duties, royalties and fees – National Taxes, i.e., Excise Tax, Income Tax, Customs
Duties and Fees, etc.– Local Taxes, i.e., Business Tax, Real Property Tax,
etc.,– Payment to Filipinos, i.e., Special Allowance, Royalty
to IPs Additional Government Share – amount
collected to achieve the 50% of the Net Mining Revenue
GOVERNMENT SHARE : 50% OF NET MINING REVENUE
Sample Calculation of Additional Government Share under FTAA
(1st Year after Recovery Period, values in US$ Million)
(1) Gross Output US$ 1,194
(2) Deductible Expenses US$ 288
(3) Net Mining Revenue = Gross Output (1) Less Deductible Expenses (2)
US$ 906
(4) Total Government Share = 50% of Net Mining Revenue (3)
US$ 453
(5) Basic Government Share US$ 293
(6) Additional Government Share = Total Government Share (4) Less Basic Government Share (5)
US$ 160
Based on a US$ 750 Million - 25 MTPY Project
FTAA FINANCIAL MODEL25 MTPY 15 MTPY 7.5 MTPY
Payback Period 1 yr 2 yrs 2 yrs
I R R 36% 32 % 29 %
NPV of Annual CF (Cont’r) $ 2,091 $ 1,155 $ 547
NPV of Annual CF (Gov’t) $ 2,691 $ 1,579 $ 678
% Contractor’s Share 44 % 42 % 45 %
% Government’s Share 56 % 58 % 55 %
Ave. Annual CF of Cont’r $ 501 $ 293 $ 145
Ave. Annual CF of Gov’t $ 507 $ 297 $ 135
% Contractor’s Share 50 % 50 % 52 %
% Government Share 50 % 50 % 48 %
OTHER ENTITLEMENTS OF FTAAs Recovery of Pre-Operating Expenses (for
FTAA Contractors)– Set at a maximum of five (5) years– May be extended for projects incurring very
large investments with high production rate and extensive mine life
Availment of the incentives under the Mining Act and Executive Order No. 226– Sufficient Ore Reserves to sustain a projected
total mine life of three (3) times the projected number of operating years with incentives,
GOVERNMENT’S SHARE IF INDIRECTTAXES ARE CONSIDERED
Government60%
Contractor40%
INDIRECT TAXES:
• Fuel tax
• Payroll and fringe benefits of Filipinos directly employed
• Expenditures for dev’t of host communities and for the dev’’t of geoscience and mine tech.
• Withholding taxes on payroll, royalty payments to claimowners and surface owners and royalty payments for technology transfer
PHASES OF MINING PROJECT WHERE FINANCIAL BENEFITS ARE ENJOYED BY
COMMUNITIES AND GOVERNMENT
Exploration , Development and Construction Phase Operating Phase
Cost Recovery Period Post - Cost Recovery PeriodBenefits enjoyed:Exploration expendituresDevt & const’n expendituresForeign exchange receiptsSocial infrastructuresDev’t of geoscience/mine techEmploymentLocal taxes and feesIndirect taxes and fees
Benefits foregone:National taxes and fee
Benefits enjoyed:Foreign exchange receiptsSocial infrastructuresDevt of geoscience/mine techEmploymentLocal taxes and feesIndirect taxes and fees
Benefits foregone:National taxes and feesAdditional government share
Benefits enjoyed:Foreign exchange receiptsSocial infrastructuresDevt of geoscience/mine techEmploymentNational taxes and feesAdditional government shareLocal taxes and feesIndirect taxes and fees
END OF PRESENTATION
Good Day!