Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First Regular Session

6020

House Bill No.

Introduced by CIBAC Party-List Representatives
Eduardo “Bro. Eddie” C. Villanueva and Domingo C. Rivera

AN ACT
PROVIDING FOR THE MAXIMIZATION OF BENEFITS FROM FINITE
MINERALS AND MINERAL PRODUCTS AND QUARRY RESOURCES
AND FOR OTHER PURPOSES

EXPLANATORY NOTE

The Filipino people are the inherent owners of the mineral resources of the
country. Unfortunately, the country’s existing fiscal regime for the mineral sector does
not provide for the adequate and equitable payment by mining companies for the
extraction and use of these resources.

Mining companies, just like any other businesses operating in the Philippines,
are required to pay taxes (including income taxes, value added tax, local government
taxes, etc.). On top of these taxes, mining companies are required to pay 5% royalty
taxes. The royalty serves as a unique payment for the use of mineral resources.

However, since not all mining companies are required to pay the royalty, the
Filipino people are not sufficiently compensated for the mineral resources that they
own and the revenues earned by mining companies are unusually disproportionate to
the revenues generated by the government from these companies. For example,
royalty paid to the government amounted to less than one percent of the total proceeds
of the mineral industry in 2018 — the government collected at most Php1.73 Billion in
royalties from the total mining gross production value of Php 179.6 Billion. Considering


the negative social and environmental impacts of mining to the country, this small
amount of taxes is barely enough to compensate the Filipino people for these finite
resources.

In addition, the mining industry also falls short in terms of other contributions to
the economy. For example, the mining sector is not a huge employment generator.
Data from the Mines and Geosciences Bureau shows that the total employment
contribution of mining in 2018 was only 207,000 or 0.46% of total employment in the
country. To maximize the employment potential of the mining industry, the country
should encourage the development of mining downstream industry in the Philippines.
This will not only expand the employment opportunity in the said industry but also allow
the country to maximize the value of our minerals at different stages of the value chain.

In line with the objective to increase the public benefits from mineral extraction
in the country, this bill proposes the following measures:

(a) Requirement of royalty payment from all mineral mining operations in the
country;

(b) The imposition of an export tax on raw ore from 2020 to 2022 (increasing
gradually from 20% to 60%) to discourage companies from exporting
unprocessed minerals, and encourage ore processing domestically;

(c)_ The prohibition to export of raw ore by 2023 to further strengthen the link of
mineral extraction to manufacturing in the long-run;

(a) The establishment of the Mining Downstream Coordinating Council tasked to
help govern the development of the mining downstream industry in the
Philippines;

(e) The increase in the share of local government units from 40% to 50% of the
proceeds derived from the utilization and development of the national wealth.
This will ensure that local governments hosting the mining operation will receive
an equitable share from the extraction of resources in their respective areas;
and

(f) The creation of a Natural Resource Trust Fund using a fraction of the proceeds
of mining activities, which may be used by the national and local governments
to support educational programs, technological research programs of national
and local relevance, and health services deemed to benefit future generations
of Filipinos.


As such, the passage of this important measure is earnestly sought to enable
the country to maximize of benefits from finite minerals and mineral products and
quarry resources.

HON. EDUARDO “BRO. EDDIE” C. VILLANUEVA

JOMINGO ¢.


OCOVHHAON=

Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First Regular Session

House Bill No. 220

Introduced by CIBAC Party-List Representatives
Eduardo “Bro. Eddie” C. Villanueva and Domingo C. Rivera

AN ACT
PROVIDING FOR THE MAXIMIZATION OF BENEFITS FROM FINITE
MINERALS AND MINERAL PRODUCTS AND QUARRY RESOURCES
AND FOR OTHER PURPOSES

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

SECTION 1. Title. — This Act shall be known as “Maximizing Benefits from Mineral
and Mineral Products and Quarry Resources Act.”

SECTION 2. Declaration of Principles. —

a) All mineral resources within the territory and exclusive economic zones of the
Republic of the Philippines are owned by the State. It shall be the responsibility of
the State to promote their rational exploration, development, utilization and
Conservation through the combined efforts of government and the Private sector
in order to enhance national growth in a way that effectively safeguards the
environment and protect the rights of affected communities.

b)

The state must establish a fiscal regime that ensures that present and future
generations of Filipinos benefit extensively from mining operations and other
extractive activities not just on the national level, but also on the local level. This
fiscal regime must also encourage the development of a downstream industry to
Pave the way for the generation of more jobs for the Filipinos.


SECTION 3. Definition of Terms. —

a)

b)

°)

qd)

e)

9)

h)

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 contractor would be
prepared to lend to the contractor;

Cash Flow Surcharge refers to a surcharge to be imposed on the cash flows
of each mining area for each taxable fiscal year;

Contract Area means the land or body of water delineated under a mineral
agreement or a financial or technical assistance agreement (FTAA) of the
Contractor and properly defined by longitude and latitude:

Contractor means a Qualified Person, as defined in Department Order 2012-
21 of the Department of Environment and Natural Resources (DENR), acting
alone or in consortium who is party to a Mineral Agreement or FTAA;

Debt, in relation to a mining contractor, means the greatest amount, at any
time, during a taxable fiscal year, of the debt obligations of a contractor on

which interest is payable as defined according to international financial
reporting standards;

Extractive Industries refer to the mining, oil, gas and coal sectors and all other

sectors that require the extraction of non-renewable natural resources for
commercial use;

Financial or Technical Assistance Agreement (FTAA) means a contract
involving financial or technical assistance for large-scale exploration,
development and utilization of mineral resources;

Gross Output means the actual market value of minerals or mineral products
from each mine or mineral land operated as a separate entity, without any
deduction for mining, processing, refining, transporting, handling, marketing or
any other expenses;

Mineral Agreement means a contract between the Government and a
Contractor, involving Mineral Production Sharing Agreement, Co-Production
Agreement or Joint Venture Agreement;

Mining Area refers to a portion of the contract area identified by the Contractor
as defined and delineated in a Survey Plan duly approved by the
Director/Regional Director concerned for Purposes of development and/or
utilization, and sites for support facilities;

Minerals refer to all naturally occurring inorganic substances in solid, liquid,
gas or any intermediate state excluding energy materials such as coal,
Petroleum, natural gas, radioactive materials and geothermal energy;

Mineral Products mean materials derived from ores, minerals and/or rocks
and prepared into a marketable state by mineral Processing;


m) Mining Operations means mining activities involving exploration, feasibility
‘study, development, and utilization;

n) Quarry Resources refers to any common rock or other mineral substances as
the Director of Mines and Geosciences Bureau may declare to be quarry
resources such as, but not limited to, andesite, basalt, conglomerate, coral
sand, diatomaceous earth, diorite, decorative stones, gabbro, granite,
limestone, marble, mari, red burning clays for potteries and bricks, rhyolite, rock
phosphate, sandstone, serpentine, shale, tuff, volcanic cinders, and volcanic
glass: Provided, That such quarry resources do not contain metals or metallic
constituents and/or other valuable minerals in economically workable
quantities: Provided, further, That non-metallic minerals such as kaolin,
feldspar, bullquartz, quartz or silica, sand and pebbles, bentonite, talc,
asbestos, barite, gypsum, bauxite, magnesite, dolomite, mica, precious and
semi-precious stones, and other non-metallic minerals that may later be
discovered and which the Director declares the same to be of economically

workable quantities, shall not be classified under the category of quarry
resources;

0) Separate Taxable Person or Personality refers to an independent taxable
entity as determined by business operations in a specific mining area;

Pp) ‘State means the Republic of the Philippines;

q) Taxable Fiscal Year means an accounting period of twelve (12) months
depending on the accounting method of the Contractor; and

D} Utilization means the extraction, mineral Processing and/or disposition of
minerals.

SECTION 4. Interpretation. — Nothing in this Act shall be construed as a diminution
of the rights and privileges of local government units presently enjoyed under existing
laws such as Republic Act No. 7160 or the Local Government Code of 1991. Further,
nothing in this Act shall be construed as a diminution of the rights enjoyed by

indigenous peoples under Republic Act No. 8371 of 1997 or The Indigenous Peoples
Rights Act of 1997.

CHAPTER II
SCOPE AND APPLICATION

SECTION 5. Scope and Application. — This Act shall apply to new Mineral
Agreements and FTAAs covering large-scale mineral mining operations that shall be
entered into after the effectivity of this Act.

This Act shall also cover existing Mineral Agreements and FTAAs where such
agreements provide that any terms and conditions resulting from repeal or amendment
of any existing laws or regulation or from the enactment of a law, regulation or
administrative order shall be considered as part of said agreements. The renewal and


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renegotiation of existing Mineral Agreements and FTAAs shall also be governed by
this Act.

CHAPTER Ill
TAXATION OF MINERALS, MINERAL PRODUCTS, AND QUARRY RESOURCES

SECTION 6. Separate Taxable Personality. — Each mining operation in a mining
area shall be considered a separate taxable entity. If a mining contractor is Party or
holds more than one mineral agreement, he shall be treated as a separate person in
respect of the business operations related to each mining area.

SECTION 7. Mining Royalty. - Mining contractors within and outside mining
reservation areas, whether large-scale or small-scale, shall Pay to the government a
mineral royalty of five percent (5%), levied, assessed and collected on minerals,
mineral products and quarry resources, based on the market value of the gross output
at the time of sale, or the value used by the Bureau of Customs in determining tariff
and custom duties, whichever is higher.

SECTION 8. Cash Flow Surcharge. - A surcharge of ten percent (10%) shall be
imposed on the cash flows of each mining area for every taxable fiscal year.

For purposes of computing the cash flow surcharge (CFS), each mining area shall be
Considered a separate taxable entity. The tax base of the CFS (CFS tax base) is
determined by adding back the depreciation and interest expense and other financing
charges to the regular taxable income used for the purposes of the corporate income
tax. In the event that CSF tax base is negative, such amount shall be carried over as
a deduction from the CSF tax base for the next three (3) consecutive years
immediately following the year of such loss.

SECTION 9. Limitation on Deductions for Purposes of Computing the CFS. —
When computing for the cash flow surcharge, mining companies must adhere to the
following guidelines:

a) A deduction for the expenses or losses incurred, wholly or partly, by a
Contractor in undertaking mining operations in a mining area during a taxable
fiscal year is allowed only against the income derived by the contractor from
such operations in the mining area during the same taxable fiscal year;

b) If the total deductions in respect of the mining operations undertaken by the
contractor in a mining area during a taxable fiscal year exceed the total taxable
income derived from the same year, the excess may be carried forward and
allowed as a deduction against the taxable income of the contractor from mining
Operations in the mining area for the next taxable fiscal year;

c) An amount that is not deducted under subsection (b) above may be carried
forward to the next taxable fiscal year and allowed as a deduction in accordance
with subsection (b) for that year and so on until the amount shall have been

fully deducted, or until the mining operations in the mining area shall have
ceased;


d) !fa contractor has an excess carried forward under subsection (b) for more than
one fiscal year, the excess of the earliest period is allowed as a deduction first;

e) \fa contractor has ceased mining operations in a mining area and the contractor
has a loss under subsection (b) in relation to the mining area, the contractor
may elect, by notice in writing to the Commissioner of the Bureau of Internal
Revenue (BIR), to treat the loss as a loss under Subsection (b) in relation to
another mining area operated by the contractor; Provided, That the latter mining

area falls wholly within the same contract area of the first-mentioned mining
area;

f) Ifa contractor has ceased mining operations in a mining area or if the contractor
has a loss under Subsection (b) in relation to the mining area and subsection
(e) does not apply to the Contractor, the Contractor may elect, by notice in
writing to the BIR Commissioner, to treat the loss as a loss under subsection
(b) in relation to mining operations undertaken by the contractor in another area.

SECTION 10. Limitations on the Interest Expense Deductions. — The following are
limitation on mining contractors for any interest expense deductions:

a) If a contractor has a debt-to-equity ratio in excess of 1.5 to 1 at any time during
a taxable fiscal year, a deduction of the interest paid by the contractor in the
Portion of the debt which exceeds the 1.5 to 1 ratio for that same fiscal year
Shall not be allowed.

b) If the debt-to-equity ratio of a contractor exceeds the 1.5 to 1 ratio for a taxable
fiscal year, subsection (a) above shall not apply; Provided, That during the said
fiscal year, the total amount of the debt of the contractor shall not exceed the
arm’s length debt amount.

SECTION 11. Export Tax on Raw Ore. — Effective January 1, 2020, a twenty percent
(20%) export tax on the gross value of raw ore shall be imposed: Provided, That
effective January 1, 2021, a forty percent (40%) export tax on the gross value of raw
ore shall be imposed; Provided further, That effective January 1, 2022, a sixty percent
(60%) export tax on the gross value of raw ore shall be imposed.

SECTION 12. Ban on Export of Raw Ore. — Export of raw ore shall be prohibited
effective January 1, 2023.

SECTION 13. Penalties. — Any company Proven to have violated Section 12 of this
Act shall be subject to a fine ranging from Five Million Pesos (P5,000,000.00) to Ten
Million Pesos (P10,000,000.00) plus five (5) times the gross value of raw ore illegally
exported. In addition, the responsible officers of the erring company shall be punished
by imprisonment of not less than one (1) year but not more than three (3) years.

SECTION 14. Incentives. - Notwithstanding anything to the contrary, all tax

incentives granted to mineral mining and quarry contractors shall be repealed
immediately upon the effectivity of this Act.


CHAPTER IV
ALLOCATION OF PROCEEDS FROM THE DEVELOPMENT
OF THE NATIONAL WEALTH

SECTION 15. Share of Local Government Units. — The local government unit
hosting the mining area shall have an equitable share in the proceeds derived from
the utilization and development of the national wealth, including sharing the same with
its inhabitants by way of direct benefits.

A local government unit 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, 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. The fifty percent
(50%) share shall be distributed among LGUs in accordance with the provisions of the
Local Government Code of 1991 and its implementing rules and regulations; Provided,
That in the event that the operation is hosted by several local government units, the
share shall be divided equitably among the host local government units based on the
amount of ore extracted from the local government unit.

The BIR shall have the authority to inspect mining sites and monitor the amount of
mineral resources extracted by companies. The BIR, the Mines and Geosciences
Bureau (MGB) and the Philippine Port Authority (PPA) shall coordinate among
themselves and reconcile the figures on the amount and value of minerals that were
actually extracted and exported by companies which were reported to them. The

reconciled figure shall be the basis for taxation and allocation of share among units of
government.

With respect to payment of business tax, eighty percent (80%) of the gross
sales/receipts of the business shall be taxable by the city or municipality hosting the
mining operation, while the remaining twenty percent (20%) of the gross sales/receipts
of the business shall be taxable by the local government unit where the main office of
the business is located. If the mining operation is hosted by several local government
units, the tax due on the eighty percent (80%) of the gross sales/receipts of the
business shall be shared equally by the said LGUs.

SECTION 16. Natural Resource Trust Fund. — The national government shall create
a National Natural Resource Trust Fund where all the proceeds from mining activities,
excluding shares of local government units, shall accrue. Local government units shall
also create a Local Natural Resource Trust Fund where shares from national
government and locally collected taxes from mining and quarrying shall accrue.

The National Trust Fund shall be governed by a multistakeholder oversight body
composed of representatives from the government, civil society, and the business
sector. The oversight body shall conduct regular monitoring and annual audit of the
utilization performance of the National Trust Fund and advise the concerned
government agencies on fund operations and compliance with the fund’s mandate. It
shall be independent, and shall have access to all relevant public information
necessary to perform its mandates.


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The Local Trust Funds shall be governed in accordance with the resolution passed by
the local sanggunian concerned provided that transparency and accountability
Mechanisms are put in place, which shall include the oversight of a local multi-
stakeholder oversight body composed of representatives from the LGU, civil society,
indigenous community (if applicable), and the business sector.

The local oversight body shall conduct regular monitoring and annual audit of the
utilization of the Local Trust Fund and the performance of the projects, activities and
Programs funded by the Local Trust Fund. The body shall also advise the concerned
LGU on fund operations and compliance with the fund’s mandate. It, shall be
independent, and shall have access to all relevant public information as may be
necessary for the efficient and effective performance of its functions.

The governing bodies may invest up to sixty percent (60%) of the money in the trust
and shall not be required to return the balance of the trust to the national government
at the end of every fiscal year.

The funds which are not otherwise invested may be used by the national and local
governments to support educational programs, technological research Programs of

national and local relevance, and health services deemed to benefit future generations
of Filipinos.

The funds shall adhere to the accounting and auditing rules of the Commission on
Audit, and shall be regularly audited by COA. The governing bodies of the funds shall

also adhere to the reporting requirements of the Philippine Extractive Industries and
Transparency Initiative.

CHAPTER V
DOWNSTREAM INDUSTRY

SECTION 17. Mining Downstream Coordinating Council. - There is hereby created
the Mining Downstream Coordinating Council (MDCC). The DENR, in coordination
with Department of Trade and Industry (DTI), Department of Science and Technology
(DOST), National Economic Development Authority (NEDA), the mining industry and
civil society, shall submit, within a period of six (6) months, a fifteen-year (15) strategic
mining downstream development program and toad-map based on the Philippine
Development Plan and National Industrialization Plan for the development of
downstream mining industries and creation of jobs for strategic metallic and
nonmetallic minerals subject to review every five (5) years.

SECTION 18. Composition of MDCC. — The MDCC shall be co-chaired by the
Secretaries of DENR and DTI and shall have the following additional members: a

representative from the mining industry, a representative from civil society
organizations and the Chairperson of the Board of Investments.

SECTION 19. Powers and Functions. - The MDCC

shall have the following powers
and functions:


(a) Submit a work plan within sixty (60) days from the effectivity of this Act for the
development of the mining downstream industry;

(b) Conduct and facilitate the necessary capacity and institutional building

Programs for all concerned government agencies and instrumentalities and
stakeholders;

(c) _ Request the assistance of any government agency or instrumentality, including
government-owned and controlled corporations and LGUs, in the

implementation of the mining downstream development program and road-
map;

(d) Conduct quarterly meetings among members of the council;

(e) Submit quarterly progress reports to the President on the status of the

implementation of the mining downstream development program and road-
map; and

(f) Perform such other functions and acts as may be necessary, proper or

incidental to the attainment of its mandates and objectives, or as may be
directed by the Chairpersons.

CHAPTER VI
TRANSITORY AND MISCELLANEOUS PROVISIONS

SECTION 20. Implementing Rules and Regulation. — The Secretaries of
Environment and Natural Resources, Interior and Local Government, Finance, and
Budget, in consultation with relevant stakeholders, shall promulgate the necessary

tules and regulations for the effective implementation of this Act within sixty (60) days
from the effectivity of this Act.

SECTION 21. Separability Clause. — If any provision of this Act is declared

unconstitutional or invalid, other parts or provisions hereof not affected thereby shall
continue to be in full force and effect.

SECTION 22. Repealing Clause. — All laws, decrees, executive orders, rules and
regulations or parts thereof which are contrary to or inconsistent with this Act are
hereby repealed, amended or modified accordingly; Provided, That nothing in this Act
shall be construed as a diminution of local autonomy or in derogation of ancestral
domain rights under the Indigenous Peoples’ Right Act of 1997.

SECTION 23. Effectivity. — This Act shall take effect fifteen (15) days after its
Publication in this Official Gazette or in any two newspapers of general circulation.

Approved,