As the mining industry struggles to overcome the impact of low metal prices, high capital and operating costs, depressed share markets and severe lack of equity, another government is going down the path of seeking more revenue from mining by way of increased taxation. Just as the Philippines starts to show signs of finally starting to reach its much talked-about mining potential, the government is considering a ‘revenue sharing scheme’ which would equate to a 10% tax on gross revenues or 55% share of the adjusted net mining revenues.

The Mining Industry Coordinating Council (MICC) has put forward the proposal and endorsed it to the President. The scheme is proposed to be in lieu of all other national and local taxes paid by mining companies, including royalty payments to indigenous cultural communities, duties and fees, and mayor’s and/or business permits from the host LGUs. If approved by the President, the proposal will be sent to the House of Representatives and filed as a bill to amend the National Internal Revenue Code and Mining Act.

Mines and Geosciences Bureau director Leo Jasareno said that under the proposal, mining firms would have to remit to the government either 10% of the gross revenues or 55% of net mining revenues plus a percentage of the excess profit, whichever is higher. He said it would apply to metallic mines and for MPSA (Mineral Production Sharing Agreement) and FTAA (Financial Technical Assistance Agreement) agreements.

Mining representative groups have expressed concern about the proposal. The Chamber of Mines of the Philippines (COMP) says an increased mining tax will have a negative effect on government revenues, render future legitimate mining projects uncompetitive and discourage the inflow of investment. It said: “The Philippine mining industry pays one of the highest tax rates in the world. The MICC proposal to impose more taxes will negatively impact one of the country’s strategic economic potentials, rendering Philippine mining projects uncompetitive and killing an industry that directly supports 250,000 families with a multiplier factor that has benefited millions.”

The proposal could not come at a worse time for mining. Investment in the Philippines’ mining sector is increasing but the vast majority is in existing projects and potential big-ticket projects in pre-development stage. There have been no new investments but there is every possibility this could flow-on from the recent investment growth shown, from some encouraging exploration results and from the strength of the nickel market following Indonesia’s ban on unprocessed ore exports.

The government’s quest for more revenue from mining also comes at a time when other countries have experienced severe side-effects from implementing similar taxes. Australia’s previous government lost power primarily due to the effects of retrograde taxes imposed on the mining industry. Mongolia’s mining industry has almost ground to a halt, causing the government to backtrack, but there is still a very long way back for the mining industry there.

Indonesian mining has also been hit hard by the new tax on raw ore exports. While its intentions to increase in-country processing are honourable, the timing was poor and implementation too hasty. With the industry hurting and mining giants Freeport-McMoRan and Newmont Mining halting exports, slashing output and even declaring force majeure, a government official says it has now drafted a new mining export tax that would more than halve the base rate to be paid by miners.

Why hasn’t the Philippines seen what is happening elsewhere? Rather than a tax on mining, COMP vice president for policy Ronald Recidoro said the government could encourage investment that would develop forward and backward linkages to mining. “Government needs to come up with complementary strategies to create the business environment and public sector institutions that encourage growth and deepen the integration of mineral projects into national and regional economies.”

The Fraser Institute’s 2013 annual global survey of mining executives ranked the Philippines as one of the worst places for investors. With other mineral-rich countries gearing up to make their resource sectors more attractive, the question must be asked: How will higher taxes increase investments in the Philippines?