Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
Third Regular Session

HOUSE BILL NO.8321

Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.

EXPLANATORY NOTE

The Philippines is considered to be one of the mineral endowed countries in the world.
Yet, the over-all contribution of metallic mining to our Gross Domestic Product (GDP)
is as small as less than half a percent on average in the last five years. This fact alone
begs for a revised mining tax structure that provides for a better revenue sharing
between the mining industry and the government.

However, the revision of our existing mining taxes should consider the over-all
intention of our government to reform our existing tax regimes. For example, the new
mining tax structure has to necessarily address the doubling of the Excise Tax from
2% to 4% of gross revenue as a result of the TRAIN law, which has in fact already
adversely affected mining operations.

Moreover, this proposal does away with small-scale mining operations as it would be
too complex to cover. It also does not include non-metallic producers to be consistent
as well with the government's Build Build Build program. For example, quarry
operators for limestone and aggregates are necessary for cement production. To
include these would simply result in further inflationary pressures on the economy.

Based on the foregoing, and over and above the doubling of Excise Tax Rate to 4%,
this measure proposes the following:

A margin based Royalty applied to net income from mining operators at a rate of
1% to 5%, and applicable to all metallic operations outside of mineral
reservations.

‘As previously mentioned, this proposal already considers other impositions. The
application of 5% Royalty across the board, on top of other impostions, would bring
the total to above 10%.

In addition, a margin-based Royalty applied to income is the same structure that is
used by large mining countries such as Chile, Peru, South Africa and Canada. In fact,
the proposed rate still results in a higher Average Effective Tax Rate (AETR) of 78.1%
compared to the aforementioned major mining countries.


This proposal likewise anticipates the impending passage of TRABAHO Bill, in which
there will be no incentives at all for the mining industry should it not be included in the
Strategic Investments Priority Plan.

This representation believes that this measure is a step towards furthering quality
investments in the mineral sector and preventing closure of big operations by
providing a tax scheme that is internationally competitive.

The approval of this bill is earnestly sought.

LUIS RA) IND “LRAY” F. VILLAFUERTE, JR.


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
‘Second Regular Session

HousE BILL No. 8321

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Introduced by HON. LUIS RAYMUND “LRAY” F. VILLAFUERTE, JR.

AN ACT
ESTABLISHING A UNIFORM TAXATION OF METALLIC MINING OPERATIONS,
AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

SECTION 1. The chapter title of Chapter VII Title VI of the National Internal Revenue
Code of 1997 (NIRC), as amended, is hereby changed to TAXATION OF MINERAL
PRODUCTS.

SECTION 2. A new section designated as Section 151-A under Chapter VII Title VI of
the NIRC, as amended, is hereby inserted and shall read as follows:

“SEC. 151-A. ROYALTY. -

A. FOR ALL METALLIC MINING OPERATIONS OUTSIDE OF MINERAL RESER-
VATIONS. - MINING CONTRACTORS OF METALLIC MINING OPERATIONS
OUTSIDE OF MINERAL RESERVATIONS SHALL PAY TO THE
GOVERNMENT A MARGIN-BASED ROYALTY ON INCOME FROM MINING
OPERATIONS IN ACCORDANCE WITH THE FOLLOWING TABLE:

MARGIN ROYALTY
1% up to 10% 1.00%

above 10% up to 20% | 1.50%
‘above 20% up to 30% | 2.00%
above 30% up to 40% | 2.50%



c.

above 40% up to 50% | 3.00%

‘above 50% up to 60% | 3.50%

above 60% up to 70% | 4.00%

above 70% 5.00%

FOR MINING OPERATIONS WITHIN MINERAL RESERVATIONS. - MINING
CONTRACTORS WITHIN MINERAL RESERVATIONS SHALL PAY TO THE
GOVERNMENT A ROYALTY EQUIVALENT TO FIVE PERCENT (5%) OF THE
GROSS OUTPUT OF THE MINERALS OR MINERAL PRODUCTS
EXTRACTED OR PRODUCED BY THE MINING OPERATIONS, EXCLUSIVE
OF ALL OTHER TAXES;

FOR PURPOSES OF THIS AND SUBSEQUENT SECTIONS IN THIS
CHAPTER —

(1) “MARGIN” SHALL MEAN THE RATIO OF INCOME FROM MINING

OPERATIONS BEFORE CORPORATE INCOME TAX TO GROSS OUTPUT.

(2) "GROSS OUTPUT” SHALL MEAN THE ACTUAL MARKET VALUE OF

MINERALS OR MINERAL PRODUCTS FROM EACH MINE OR MINERAL
LAND OPERATED AS A SEPARATE ENTITY, WITHOUT ANY DEDUCTION
FORMINING, PROCESSING, REFINING, TRANSPORTING, HANDLING,
MARKETING OR ANY OTHER EXPENSES: PROVIDED, THAT OF THE
MINERALS OR MINERAL PRODUCTS ARE SOLD OR CONSIGNED ABROAD
BY THE MINING CONTRACTOR UNDER C.LF. TERMS, THE ACTUAL COST
OF OCEAN FREIGHT AND INSURANCE SHALL BE DEDUCTED: PROVIDED,
FURTHER, THAT IN THE CASE OF MINERAL CONCENTRATES WHICH ARE
NOT TRADED IN COMMODITY EXCHANGES IN THE PHILIPPINES OR
ABROAD, SUCH AS COPPER CONCENTRATES, THE ACTUAL MARKET
VALUE SHALL BE WORLD PRICE QUOTATIONS OF THE REFINED MINERAL
PRODUCTS CONTENT THEREOF PREVAILING IN THE SAID COMMODITY
EXCHANGES, AFTER DEDUCTING THE SMELTING, REFINING,
TREATMENT, INSURANCE, TRANSPORTATION AND OTHER CHARGES
INCURRED IN THE PROCESS OF CONVERTING MINERAL
CONCENTRATES INTO REFINED METAL TRADED IN THOSE COMMODITY
EXCHANGES.


(3) “INCOME FROM MINING OPERATIONS” SHALL MEAN THE GROSS OUT
PUT LESS DEDUCTIBLE EXPENSES, WHICH INCLUDE:

(a) MINING, MILLING, TRANSPORT AND HANDLING EXPENSES
TOGETHER WITH SMELTING AND REFINING COSTS OTHER THAN
SMELTING AND REFINING COSTS PAID TO THIRD PARTIES;

(b) GENERAL AND ADMINISTRATIVE EXPENSES ACTUALLY INCURRED BY
THE MINING CONTRACTOR IN THE PHILIPPINES;

(c) ENVIRONMENTAL EXPENSES OF THE MINING CONTRACTOR,
INCLUDING SUCH EXPENSES NECESSARY TO FULLY COMPLY WITH
ITS ENVIRONMENTAL OBLIGATIONS AS STIPULATED IN THE
ENVIRONMENTAL PROTECTION PROVISION OF THE MINERAL
AGREEMENT OR FTAA AND IN THE APPLICABLE IMPLEMENTING
RULES AND REGULATIONS;

(d) EXPENSES FOR THE DEVELOPMENT OF HOST AND NEIGHBORING
COMMUNITIES AND FOR THE DEVELOPMENT OF GEOSCIENCES AND
MINING TECHNOLOGY, INCLUDING TRAINING COSTS AND EXPENSES
AS STIPULATED IN THE MINERAL AGREEMENT OR FTAA AND IN THE
APPLICABLE IMPLEMENTING RULES AND REGULATIONS;

(e) ROYALTY PAYMENTS TO CLAIMOWNERS OR SURFACE LAND
OWNERS RELATING TO THE CONTRACT AREA DURING THE
OPERATING PERIOD, IF ANY;

(f) CONTINUING EXPLORATION AND DEVELOPMENT EXPENSES WITHIN
THE CONTRACT AREA AFTER THE PRE-OPERATING PERIOD;

(g) INTEREST EXPENSES CHARGED ON LOANS OR SUCH OTHER
FINANCING RELATED EXPENSES INCURRED BY THE MINING
CONTRACTOR SUBJECT TO THE FINANCING REQUIREMENT IN THE
MINERAL AGREEMENT OR FTAA, WHICH SHALL NOT BE MORE THAN
THE PREVAILING INTERNATIONAL RATES CHARGED FOR SIMILAR
TYPES OF TRANSACTIONS AT THE TIME THE FINANCING WAS


ARRANGED, AND WHERE SUCH LOANS ARE NECESSARY FOR THE
OPERATION;

(h) DEPRECIATION, DEPLETION, AND AMORTIZATION;
(i) TAXES, DUTIES, FEES, AND CHARGES.

(j) ALL OTHER COSTS AND EXPENSES RELATED TO MINING
OPERATIONS AND SALE OF MINERALS AND MINERAL PRODUCTS.

(4) ‘MINING CONTRACTOR’ SHALL MEAN A QUALIFIED PERSON ACTING
ALONE OR IN CONSORTIUM WHO IS A PARTY TO A MINERAL
AGREEMENT OR FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT
(FTAA).

EACH MINING OPERATIONS, WHICH ARE SUBJECT TO A MINERAL AGREEMENT
OR FTAA, SHALL BE TREATED AS A SEPARATE TAXABLE ENTITY. A MINING
CONTRACTOR SHALL BE TREATED AS IF A SEPARATE TAXPAYER WITH
RESPECT TO EACH AND EVERY MINERAL AGREEMENT OR FTAA IT HOLDS OR
IS A PARTY TO.

IF AMINERAL AGREEMENT OR FTAA IS RENEWED, THE RENEWAL SHALL BE
TREATED AS PART OF THE ORIGINAL AGREEMENT.”

SECTION 3. A new section designated as Section 151-B under Chapter VII Title VI of
the NIRC, as amended, is hereby inserted and shall read as follows:

"SEC, 151-B. WINDFALL PROFITS TAX-

(A) IN ADDITION TO THE TAXES IMPOSED UNDER THIS CODE, THERE IS
HEREBY IMPOSED FOR EACH TAXABLE YEAR A MARGIN-BASED
WINDFALL PROFITS TAX ON INCOME FROM MINING OPERATIONS
BEFORE CORPORATE INCOME TAX, IN ACCORDANCE WITH THE
FOLLOWING TABLE, PROVIDED THAT IT SHALL BE DEDUCTIBLE FROM
TAXABLE INCOME, AS DEFINED IN SECTION 31, CHAPTER V, TITLE Il OF
THIS CODE:


MARGIN RATE
more than 35% up to 40% | 1%
more than 40% to 45% 2%
more than 45% to 50% 3%
more than 50% to 55% 4%
more than 55% to 60% 5%
more than 60% to 65% 6%
more than 65% to 70% T%
more than 70% to 75% 8%
more than 75% to 80% 9%
more than 80% 10%

SECTION 4. The NIRC, as amended, is hereby further amended by introducing a new
Paragraph (4) under Section 34 (B), Chapter Vil, Title II, which shall read as follows:

(4) LIMITATION OF INTEREST EXPENSE DEDUCTIONS FOR MINING
CONTRACTORS

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IF A MINING CONTRACTOR HAS A DEBT-TO-EQUITY RATIO
IN EXCESS OF 3 TO 1 AT ANY TIME DURING A TAXABLE
YEAR, A DEDUCTION IS DISALLOWED AS A_ TAX-
DEDUCTIBLE EXPENSE FOR THE INTEREST PAID BY THE
MINING CONTRACTOR DURING THAT YEAR ON THAT PART
OF THE DEBT THAT EXCEEDS THE 3 TO 1 RATIO FOR THE
PERIOD THE RATIO WAS EXCEEDED.

IF THE DEBT-TO-EQUITY RATIO OF A MINING CONTRACTOR
EXCEEDS 3 TO 1 FOR AN INCOME YEAR, SUBSECTION (1)
DOES NOT APPLY IF, AT ALL TIMES, DURING THE YEAR, THE
AMOUNT OF THE DEBT OF THE MINING CONTRACTOR DOES
NOT EXCEED THE ARM'S LENGTH DEBT AMOUNT.

IN THIS SECTION-

"ARM'S LENGTH DEBT AMOUNT’, IN RELATION TO A MINING CONTRACTOR,
MEANS THE AMOUNT OF DEBT THAT A BANK THAT IS NOT AN ASSOCIATE OF


THE MINING CONTRACTOR WOULD BE PREPARED TO LEND TO THE MINING
CONTRACTOR HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE
MINING CONTRACTOR;

‘ASSOCIATE’, IN RELATION TO A PERSON, MEANS ANY OTHER PERSON WHO
ACTS OR MAY ACT IN ACCORDANCE WITH THE DIRECTIONS, REQUESTS,
SUGGESTIONS, OR WISHES OF THE FIRST-MENTIONED PERSON, AND THE
FIRST-MENTIONED PERSON IS AN ASSOCIATE OF THE SECOND MENTIONED
PERSON;

‘DEBT’, IN RELATION TO A MINING CONTRACTOR, MEANS THE GREATEST
AMOUNT, AT ANY TIME DURING AN INCOME YEAR, OF THE DEBT
OBLIGATIONS OF THE MINING CONTRACTOR ON WHICH INTEREST IS
PAYABLE AS DETERMINED ACCORDING TO INTERNATIONAL FINANCIAL
REPORTING STANDARDS;

‘DEBT OBLIGATION’ MEANS AN OBLIGATION TO MAKE A REPAYMENT OF
MONEY TO ANOTHER PERSON, INCLUDING AN OBLIGATION ARISING UNDER
A PROMISSORY NOTE, BILL OF EXCHANGE, OR BOND, BUT NOT INCLUDING
ACCOUNTS PAYABLE OR AN OBLIGATION TO MAKE REPAYMENT OF MONEY
IN RESPECT OF WHICH NO INTEREST IS PAYABLE;

‘EQUITY’, IN RELATION TO A MINING CONTRACTOR, MEANS THE GREATEST
AMOUNT, AT ANY TIME DURING AN INCOME YEAR, OF THE EQUITY OF THE
MINING CONTRACTOR AS DETERMINED ACCORDING TO INTERNATIONAL
FINANCIAL REPORTING STANDARDS AND INCLUDES AN OBLIGATION TO
MAKE A REPAYMENT OF MONEY IN RESPECT OF WHICH NO INTEREST IS
PAYABLE.

SECTION 5. Section 287 (A) of the NIRC, as amended, is hereby amended and shall
read as follows:

“(A) AMOUNT OF SHARE OF LOCAL GOVERNMENT UNITS. - LOCAL
GOVERNMENT UNITS SHALL, IN ADDITION TO THE INTERNAL REVENUE


ALLOTMENT, HAVE A SHARE OF FIFTY PERCENT (50%) OF THE GROSS
COLLECTION DERIVED BY THE NATIONAL GOVERNMENT FROM THE
PRECEDING FISCAL YEAR FROM EXCISE TAXES ON MINERAL PRODUCTS,
ROYALTIES, AND SUCH OTHER TAXES, FEES OR CHARGES, INCLUDING
RELATED SURCHARGES, INTERESTS OR FINES, AND FROM ITS SHARE IN ANY
CO-PRODUCTION, JOINT VENTURE OR PRODUCTION SHARING AGREEMENT
IN THE UTILIZATION AND DEVELOPMENT OF THE NATIONAL WEALTH WITHIN
THEIR TERRITORIAL JURISDICTION.”

SECTION 6. Pollution control devices. - Pollution control devices acquired,
constructed or installed by mining contractors shall not be considered as
improvements on the land or building where they are placed, and shall not be subject
to real property and other taxes or assessments: Provided, however, that payment of
mine wastes and tailings fees is not exempted.

SECTION 7. Depreciation of Properties Used in Mining Operations. - An allowance

for depreciation in respect of all properties used in mining operations, shall be
computed as follows:

(a) At the normal rate of depreciation if the expected life is ten (10) years or less;
or

(v) Depreciated over any number of years between five (5) years and the
expected life if the latter is more than ten (10) years, and the depreciation
thereon allowed as deduction from taxable in- come: Provided, That the
contractor notifies the Commissioner at the beginning of the depreciation
period which depreciation rate allowed by this Section will be used.

SECTION 8. The fiscal regime and revenue sharing arrangement provided herein and
the applicable terms and conditions provided under existing laws shall be embodied
in the mineral agreements and FTAAs entered into by the government.

SECTION 9. Valid mineral agreements and FTAAs existing prior to the effectivity of
this Act shall continue to be governed by their respective terms and conditions,


including their recovery period in fiscal regimes, unless such mineral agreements and
FTAAs expressly provide that any terms and conditions resulting from repeal or
amendment of any existing laws or regulations or from the enactment of a new law or
regulation shall be considered a part of said mineral agreement and FTAAs, Provided,
further, that the application of the provisions of this Act to existing mineral agreements
and FTAAs shall not have the effect of impairing or reducing vested rights.

SECTION 10. Implementing Rules and Regulations. - The Department of Finance,
in consultation with other concerned government agencies, shall, within ninety (90)
days from the effectivity of this Act, promulgate rules and regulations to implement the
intent and provisions of this Act.

SECTION 11. Separability Clause. - Should any provision herein be declared
unconstitutional, the same shall not affect the validity of the other provisions of this
Act.

SECTION 12. Repealing Clause. — All laws, decrees, orders, rules, and regulations
or other issuances or parts inconsistent with the provisions of this Act are hereby
repealed, amended, or modified accordingly.

SECTION 13. Effectivity Clause. — This Act shall take effect in fifteen (15) days after

publication in the Official Gazette or in one (1) newspaper of general circulation in the
Philippines.

Approved,