The government should maximize economic linkages from mining so it will contribute to national development even when the Philippines finally has a stable and competitive tax regime, delegates to the Mining Philippines 2013 conference in Manila were told last week.  1

A tax system called Average Effective Tax Rate (AETR), which compares taxation between mining countries, has indicated that the Philippines has among the world’s highest tax rates for mining based on an International Monetary Fund (IMF) report.

World Bank Group’s mining expert Michael Stanley affirmed during the conference that the use of the AETR as a tax comparison system between countries is internationally acceptable. However, he said the Philippines should now concentrate on using mining operations to create a domino effect in rural economic activity.

“What government should focus on is on a more robust curve. It actually becomes a better curve than the mine curve itself. Revenue comes not only from the mine itself but from other services it creates,” Michael Stanley said.

He said that the Philippines can avoid the feared ‘resource curse’ concept by ensuring that revenues from mining are used properly for rural development. “Resource curse countries are those that fail to use (resource revenues) from the mines that led to the curse, as these countries have the fewest economic linkages.”

The resource curse or ‘Paradox of Plenty’ concept refers to conclusions that countries rich in natural resources, like minerals or oil and gas, are inclined to be less economically developed, as these depend on highly-volatile foreign revenue sources. The concept is largely associated with oil-producing countries in the Middle East, including Iraq, Iran, Saudi Arabia and Kuwait.

The AETR system tags the Philippines as having among the highest mining tax charges, standing at around 60% of the total value of a mine project for the mineral production sharing agreement (MPSA) contract. Local mining tax impositions could go as high as 80% for the financial and technical assistance agreement (FTAA) that was designed to attract foreign investors in Philippine mining.

Economist Dr Bernardo M Villegas of the University of Asia and the Pacific (UA&P) concurred that economic linkages would create a multiplier effect that can also come from the mining sector, not only from sectors touted by the government such as the business process outsourcing (BPO) sector. He cited a UA&P study indicating that based on its multiplier effect, mining contributed to an effective 3.3% of GDP as of 2011.

This is underscored in the country’s metal exports in 2011 of P115.2 billion, which Bernardo Villegas said has a multiplier effect of P299.52 billion. It takes into consideration mining’s ‘output multiplier’ of 2.6, or a gain of 2.6 pesos for every peso of income generated. He said President Benigno S Aquino III himself recognized the importance of the multiplier effect when he singled out the BPO sector in his State of the Nation Address in 2012.

The President took note that the BPO sector is seen to create 1.3 million jobs by 2016 from the current 800,000. “Yet its contribution is not only this employment but an additional 3.2 million jobs for taxi drivers, baristas, canteen operators and other indirect jobs benefitting from BPOs,” Bernardo Villegas said.

He said he does not see a resource curse happening in the Philippines, as government is already seeing the benefits of mining. The Department of Environment and Natural Resources noted that more than 70 mining companies in the Philippines contributed to planting of around 13 million trees in 2012. The mining sector claimed to have been contributing revenue to government of at least P10 billion from 2007 to 2010.

“Mining companies have also been contributing to the construction in rural areas of roads, water supply infrastructure, power facilities, schools, hospitals and health clinics. With the mandated 5% royalty in mines within ancestral domains, mining companies are also contributing to the social and economic welfare of indigenous communities.

“Other sectors contest mining should no longer be developed since the country hit more than 7% GDP growth rate in the second quarter. But 7% is nothing and the Philippines will need to sustain 10 to 12% growth for the trickle-down to the poorer population to happen.

“When China’s rapid development starting more than 20 years ago, its growth rate was hitting around 10% year in and year out consistently for several years. And for the Philippines, mining can take that role of contributing to higher, intensified, rapid growth,” he added.

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