PHL mining sector and its almost non-existent contribution to economic growth

By Joann Santiago

MANILA, March 23 (PNA) — The Philippines is among the countries in the world that are greatly endowed with mineral resources.

This should be one of the major drivers of the domestic economy since, for one, there are about 38 operating large scale metallic mines in 13 provinces from Luzon to Mindanao.

In 1995, The Philippine Mining Act was passed allowing 100 percent foreign ownership on large scale mining operations.

The entry of foreign mining firms increased domestic mineral output but it failed to lift the mining sector’s contribution to total domestic output.

To date, contribution of mining to the gross domestic product (GDP) is about one percent.

In 2013, the domestic economy grew the fastest in the Association of Southeast Asian Nations (ASEAN) with higher-than-expected 7.2 percent growth. This is above the government’s six to servent percent target growth.

Relatively, contribution of the mining sector to excise tax collection is only three percent in 2012, a far cry from the 45.5 percent contribution of tobacco, 33 percent of alcohol, and 14 percent of petroleum products.

During the same year, total excise tax collected from the mining industry amounted to P2.21 million, or about three percent of total excise tax collection.

Similarly, provinces where the mining operations are located are among the provinces with very high incidence of poverty.

According to Cielo Magno, national coordinator of Bantay Kita who represents the civil society in the country’s bid to be included in the global extractive industries transparency initiative (EITI), the Philippines still have lots of room to grow in terms of increasing the mining sector’s contribution in domestic growth.

She said total taxes and royalties collected by the government from the mining sector reached P22.08 billion in end-2011.

Data from the Mines and Geosciences Bureau (MGB) as of end-2013 shows that total mining investment in the Philippines reached US$ 618.5 billion in 2011, lower than year-ago’s US$ 968.3 billion.

Magno pointed out that the government doesn’t have a share on the mining companies’ profit and only have a three percent share in total proceeds for the coal sector alone.

The government could have a higher share on mining companies’ revenues since this is the trend worldwide, she said.

Magno noted that Indonesia increased its export tax mining to 50 percent from 25 previously, Australia has 30 percent tax on the profit of new and existing coal and iron ore projects and China’s iron ore levy increased from 60 percent to 80 percent.

She also disclosed that small scale mining’s contribution to total gold production in the country was about 45-86 percent until it dropped to about four percent in 2012 after the Bureau of Internal Revenue (BIR) tasked the central bank to collect excise tax from informal gold miners.

There is an estimated 300,000-500,000 small scale miners in the Philippines .

Amid the drop in the number of small scale miners selling gold to the Bangko Sentral ng Pilipinas (BSP), Internal and Revenue Commissioner Kim Jacinto-Henares said the agency will continue to collect taxes from this group.

“I cannot abolish it. It’s in the law. It’s an excise tax on mineral. The Bureau has no authority to abolish that,” she said.

She explained that before the agency strengthened the collection of excise tax on small scale miners the government is not getting any revenue from this group, thus, it doesn’t matter if the current collection is small.

She pointed out that even if these miners sell their supply to the underground economy the buyers will sell it again to other buyers “so down the road we will try to trace it.”

“Who we’re running after now are the traders,” she stressed.

In February 2014, the BIR filed a P2.72 billion tax evasion case against a trader Jimmy Bie Chua who sold gold and silver to the BSP from 2005-09 without filing corresponding tax returns.

The BIR said the trader sold to the central bank a total of P3.15 billion worth of gold and silver during the five-year period.

The current issues surrounding the mining sector’s contribution to the domestic economy are now being addressed as the government undertakes measures to meet global transparency initiative on extractive industry.

Finance Assistant Secretary Ma. Teresa Habitan said 22 stakeholders from the private sector have agreed to open their books for the government to countercheck whether operations reports submitted by the private sector are similar to government data.

“This will enable us to have a shared information database that we can all access, which in turn, will shed light about the industry,” she said.

The companies that signed waivers authorizing the Philippine Extractive Industries Transparency Initiative (PH-EITI) to gather information about the firms’ operations are composed of three oil and gas firms namely Pilipinas Shell, Chevron and the Philippine National Oil Corporation-Exploration Corporation (PNOC).

The others include 16 companies that are members of the Chamber of Mines of the Philippines and three others that are not member of the Chamber.

PH-EITI will submit its report to an independent administrator, which will validate the report.

Habitan said the process of validation takes about 18 months and it’s either approved, which will make a country compliant to the global transparency initiative, or be reviewed.

If the report needs to be reviewed, the country will be given three years to rewrite the report to meet the standards.

Habitan and Magno are one in saying that being compliant to the transparency initiative doesn’t automatically result to increase in taxes.

“The fact that we will be formulating policies is a big help,” Habitan said.

“I think they (lawmakers) would have better data to determine whether or not an increase in taxes is warranted,” she added. (PNA)