Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINETEENTH CONGRESS
First Regular Session

"3888

House Bill No.

Introduced by REP. LEX ANTHONY CRIS A. COLADA
EXPLANATORY NOTE

Section 1 Article XII of the 1987 Philippine Constitution states that the goals of the
national economy are a more equitable distribution of opportunities, income, and wealth;
a sustained increase in the amount of goods and services produced by the nation for the
benefit of the people; and an expanding productivity as the key to raising the quality of
life for all, particularly the underprivileged.

It was only last April 2021 when the moratorium on the issuance of new mining
permits was lifted by virtue of Executive Order No. 130.Undoubtedly, the moratorium have
caused hindrance to the nation in attracting quality direct investments in the mining
industry. The very reason why mining industries merely contributes 1% of the national
economy.

Currently, the mining industry is one of the heavily taxed industry for both national
and local government. National government imposes corporate income tax, value-added
tax, excise tax, royalty tax under Republic Act No. 7942, otherwise known as the
Philippine Mining Act, other fees and charges in relation to mining operations. On the
other hand, local governments imposes occupation fee, business tax, real property tax,
community tax, registration fee, wharfage fee, permit fee, extraction fee, sand and gravel
tax and other local taxes.

This measure seeks to rationalize and institute a single fiscal regime applicable to
all metallic mining operations whether operating inside or outside mineral reservation. It
is the version where both the government can collect more revenues while the mining
sector will grow and will be developed.

Hence, this bill imposes a 10% royalty tax for large scale metallic mining operations
operating inside and outside the mineral reservation in lieu of value added tax, excise and
royalty tax imposed under R.A. No. 7942. On the other hand, small scale mining
operations will now be governed under this bill.

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DATEMS 2 2 2008

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In view of the foregoing, the passage of this bill is earnestly urg

LEX ANTHONY CRIS A. COLADA


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINETEENTH CONGRESS
First Regular Session

“3888

House Bill No.

INTRODUCED BY REP. LEX ANTHONY CRIS A. COLADA

AN ACT
ESTABLISHING THE FISCAL REGIME FOR THE MINING INDUSTRY

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

SECTION 1. Section 34(B) of the National Internal Revenue Code of 1997, as amended,
is hereby amended to read as follows:

“SEC. 34. Deductions from Gross Income. — x x x

“(A) Expenses. -
“xxx

*(B) Interest. —
“(1 Xxx

"(2) xxx

"(3) xxx

“(4) LIMITATION OF INTEREST EXPENSE DEDUCTIONS FOR MINING
CONTRACTORS:

(A)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.

(B)IF THE DEBT-TO-EQUITY RATIO OF A_ MINING
CONTRACTOR EXCEEDS 3 TO 1 FOR AN INCOME YEAR,
SUBSECTION (A) 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.

(C)FOR PURPOSES OF THIS SECTION, THE TERM —

(1) ARM’S LENGTH DEBT AMOUNT SHALL MEAN 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

(2) ASSOCIATE SHALL MEAN 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

(3) DEBT SHALL MEAN 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

(4) DEBT OBLIGATION SHALL MEAN 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

(5) EQUITY SHALL MEAN 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

“(C) Taxes. —
“XK

“(D) Losses. —
“XXX

“(E) Bad Debts. —
“xxx

“(F) Depreciation. —
“xXx

“(G) Depletion of Oil and Gas Wells and Mines. —
“XXX

“(H) Charitable and Other Contributions. —
“XXX

“(\) Research and Development. —
pees

“(J) Pension Trusts. — x x x
“(K) Additional Requirements for Deductibility of Certain Payments. — x x x
“(L) Optional Standard Deduction. — x x x

SEC. 2. The chapter title of Chapter VII, Title VI of the National Internal Revenue Code
of 1997 (NIRC), as amended, is hereby amended to read as follows:

“CHAPTER Vil — [EXCISE TAX ON MINERAL PRODUCTS] TAXATION OF
MINERAL PRODUCTS’.

SEC. 3. Section 151 (A), Chapter VII, Title VI of the National Internal Revenue Code of
1997, as amended, is hereby amended to read as follows:

“SEC. 151. Mineral Products. — (A) Rates of Tax. - There shall be levied,
assessed and collected on minerals, mineral products and quarry
resources, excise tax as follows:

(1) xxx


(2)xxx

2 On [all] THE IMPORTATION OF metallic minerals, a tax based on the

the] value used by the
Bureau of Customs in determining tarif and customs duties, net of excise

tax and value-added tax, [in-the-case-of importation, ] in accordance with the

following schedule;

(a) Copper and other metallic minerals, [fourpercent—(4%)] SEVEN
PERCENT (7%);

(b) Gold and chromite, [four percent(4%)] SEVEN PERCENT (7%).
(4) xxx.”

SEC. 3. Royalty Tax on Mineral Products. — (A) For large scale metallic mining operations
operating inside and outside mineral reservations. — Mining contractors of large-scale
metallic mining operations operating inside and outside mineral reservations shall pay to
the government a royalty equivalent to ten percent (10%) of the gross output of the
minerals or mineral products extracted or produced by the mining operations. Said tax
shall be in lieu of all taxes, fees and charges of any kind, nature or description levied,
established or collected by the national government including the imposition of the value-
added tax, excise tax and royalty tax under Republic Act No. 7942, otherwise known as
the Philippine Mining Act of 1995 in relation to its mining operations.

(8) For small-scale metallic and non-metallic mining operations. — Mining contractors of
small-scale mining operations shall pay to the government a royalty equivalent to one-
tenth (1/10) of one percent (1%) of gross output;

(C) For the purposes of this section, the term —

(1) Margin shall mean the ratio of income from mining operations
before corporate income tax to gross output.

(2) Income from mining operations shall mean the gross output less
deductible expenses which includes:

(a) Mining, miling, 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 financial or
technical assistance agreement 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 financial or technical
assistance agreement and in the applicable implementing
ules and regulations;

(e) Royalty payments to claim owners 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
financial or technical assistance agreement, 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; and

()) All other costs and expenses related to mining operations and
sale of minerals and mineral products.

(3) Mining contractor shall mean a qualified person acting alone or
in consortium who is a party to a mineral agreement or financial
and technical assistance agreement.”

SEC. 4, Each Mining Operation Treated as a Separate Taxable Entity. - Each mining
‘operation, which is subject to a Mineral Agreement or Financial or Technical Assistance
‘Agreement, shall be treated as a separate taxable entity. A mining contractor shall be



treated as a separate taxpayer with respect to each and every Mineral Agreement or
Financial or Technical Assistance Agreement (FTAA) it holds or is a party to.

If a Mineral Agreement or Financial or Technical Assistance Agreement is renewed, the
renewal shall be treated as part of the original agreement.

SEC. 5. Exemption from Confidentiality Clauses. — Mining contractors for all metallic and
nonmetallic mining operations, whether large-scale or small-scale, shall observe fiscal
transparency and comply with the requirements of the Extractive Industries Transparency
Initiative (EITI) of government, and, for this purpose, shall be exempted from application
of the confidentiality clauses of the National Internal Revenue Code of 1997, as amended,
including Section 270 in relation to Section 71, to the extent of their participation in the
em.

SEC. 6. Fiscal Regime Under Financial or Technical Assistance Agreements and Other
Mineral Agreements. — The fiscal regime provided herein and the applicable terms and
conditions provided under existing laws shall be embodied in the Mineral Agreements
and Financial or Technical Assistance Agreements entered into by the government.

SEC. 7. Vested Rights. - Valid Mineral Agreements and Financial and Technical
Assistance Agreements existing prior to the effectivity of this Act shall continue to be
governed by their respective terms and conditions, except if these provide that terms and
conditions resulting from repeal or amendment of existing laws or regulations or from the
enactment of a new law or regulation shall be considered a part of said Financial and
Technical Assistance Agreements and Mineral Agreements.

SEC. 8. Registration of Small-scale Miners for Taxation Purposes. — All persons engaged
in small-scale mining activities shall register with the Mines and Geosciences Bureau
(MGB) and with the Mining Board of the concemed local government unit in accordance
with Republic Act No. 7076 or the "People's Small-Scale Mining Act of 1991,” and may
organize themselves into cooperatives in order to qualify for the awarding of a people's
small-scale mining contract.

The Mining Board shall submit an annual report to the MGB of all the small-scale mining
contracts entered into for the small-scale utilization of a plot of mineral land including the
respective production output, taxes and fees paid.

For this purpose, a tax identification number shall be secured from the Bureau of Internal
Revenue as a requirement for registration.

SEC. 9. Disposition of Royalties for the Natural Resource Trust Fund. — The provisions
of existing laws to the contrary notwithstanding, the revenues collected from the margin-
based royalty paid by the large-scale metallic mining operations outside of mineral
reservations shall accrue to the Natural Resource Trust Fund under this Act. The Bureau
of Treasury shall create a Special Account on said revenues and shall serve as its fund
manager.


The Natural Resource Trust Fund shall be remitted to the Bureau of Treasury within the
first quarter of the succeeding income year. The fund shall redound to the benefit of
provinces, cities, municipalities, and barangays directly affected by mining operations
which shall commence three (3) years after the effectivity of this Act, and every six (6)
years thereafter.

The Natural Resource Trust Fund shall be used by the local government unit concerned
to support educational programs, technological research programs of local relevance,
disaster risk management, rehabilitation of abandoned mines before the enactment of
Republic Act No. 7942 or the “Philippine Mining Act of 1995," and health services
programs of the communities directly affected by mining activities:Provided, That the
Department of Budget and Management, in consultation with the Department of
Environment and Natural Resources and the Department of Finance, shall issue rules
and regulations governing the allocation and disbursement of the fund allocated to
provinces, cities, municipalities, and barangays not later than one hundred and eighty
(180) days from the effectivity of this Act.

SEC. 10. Implementing Rules and Regulations. - The Department of Finance, after
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.

SEC. 11. Repealing Clause.

(A) The second paragraph of Section 5 of Republic Act No. 7942, otherwise known as
the Philippine Mining Act of 1995 is hereby amended to assign the Bureau of
Internal Revenue as the collecting agent of the payment of royalty.

(B) Section 13 of Department of Environment and Natural Resources Administrative
Order No. 2010-21 is hereby amended insofar as it governs the payment of 5%
royalty by contractors/permit holders/lessees within mineral reservations.

(C)All laws, acts, 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.

SEC. 12. 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.

SEC. 13. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a newspaper of general circulation.

Approved,