EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

introduced by Representative Rodriguez
House Bill No. 4874
EXPLANATORY NOTE

This bill seeks to rationalize the mining industry's fiscal regime in order to enhance
government's equitable share in the utilization of the natural resources particularly on the
mining industry and ensure that mining contractors shoulder the environmental costs of their
‘activities and fund the necessary environmental protection programs as well as developing
technology that may mitigate adverse impacts of the mining industry.

However, there is a need to differentiate metallic and non-metallic mining. The
imposition of the proposed margin-based royalty and windfall profit tax on non-metallic
mining operations would be confiscatory and would affect inflation on prime commodities
whose composition originate from minerals produced by the non-metallic mining industry.

Metallic mining involves the extraction of metallic minerals which are the type of
minerals that are composed of metals while non-metallic mining involves the extraction of
minerals that do not comprise of metals. The latter types of minerals are used in various
industries to manufacture _ different domestically used products. Examples of such kind of
minerals are limestone, shale and silica which are highly used in the manufacturing of
cement as well as basalt which generally comprises 60% to 70% of the concrete.

The manner of conducting the respective mining operations of metallic and non-
metallic minerals also differs. The extensive processes required of metallic minerals result in
creation of more waste. Thus, metallic mining has a greater environmental impact. Further,
based on the current market trend of the respective mining products in the country, almost
all of the metallic mineral products are exported or sold overseas which has a minimal effect
‘on the business of employment downstream while almost all of the non-metallic mineral
products are sold locally and used in the manufacture of different domestic products such as
fertilizers, ready mix plants, asphalt plant, aggregates plants and cement. The downstream
industry of the non-metallic mines is also the backbone of the BUILD, BUILD, BUILD
program of the current administration. Thus, any increase in taxes on non-metallic mining
will have an impact on the prices of these domestic products and will obviously have an
enormous impact on government projects, not to mention that non-metallic mineral products
are already loaded with 12% VAT.

In addition, the imposition of additional taxes will further put mining operations under
Mineral Production Sharing Agreements (MPSA) in a bad position in terms of its
competitiveness. For the implementation of the Social Development Management Program
(SDMP) alone, MPSA holders already spends 1.5% of its direct mining cost for community
alleviation. Further, MPSA holders also spend for their Final Mine Rehabilitation
Development Plan and other environmental contingency funds. On the contrary, while small.
scale mining operators (those operating under quarry permits) delivers more than 50% of
the market supply, the above stated expenditures imposed on MPSA holders are not
imposed. Therefore, the mining industry operating under MPSA could not compete
commercially with small scale operations.


It is therefore clear that there is a huge difference between the minerals produced by
the two mining operations. Thus, imposing a single fiscal regime applicable to all metallic
and nonmetallic mining operations, either within or outside mining reservations, without
valid qualification or distinction, would not at all be fair to non-metallic mining permit holders
whose mineral products are highly demanded for local use.

‘Also, Republic Act No. 10963 already increased the excise taxes on non-metallic
minerals and quarry resources by one hundred percent (100%). The imposition of the
Sdditional margin-based royalty and windfall profit tax will also result to higher domestic
prices of many prime commodities, especially cement and aggregates, which wil make
these commodities or products less competitive in the regional market. The tax burden will
be shifted or passed on to the end consumers who are generally domestic based contrary to
the metallic mining industry whose products are exported overseas catering to the demands
of the global market,

In view of the foregoing, the immediate approval of this measure is eamestly
requested while recognizing the exclusion of the non-metallic mining industry from the

proposed fiscal regime.
Uh

RUFUS B. ROD! EZ


EIGHTEENTH CONGRESS )
REPUBLIC OF THE PHILIPPINES )
First Regular Session )

HOUSE OF REPRESENTATIVES

Introduced by Representative Rufus

driguez_

House Bill No, 4874

AN ACT
ESTABLISHING THE FISCAL REGIME FOR THE MINING INDUSTRY

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

SECTION 1. Title. - The chapter title of Chapter Vil, Title VI of the National Internal Revenue
Code of 1997, as amended, is hereby amended to read as follows:

“CHAPTER Vil - [EXCISE TAX ON MINERAL PRODUCTS] TAXATION OF
MINERAL PRODUCTS”

SEC. 2. Section 151 of Chapter VII, Title VI of the National intemal Revenue Code of 1997,
as amended, is hereby amended to read as follows.

"SEC. 151. TAX ON Mineral Products.

SEC. 3. - A new section designated as Section 151-A under Chapter VII, Title VI of the
National Internal Revenue Code of 1997, as amended, is hereby inserted and shall read as
follows

"SEC. 151-A. ROYALTY.

(A) FOR LARGE-SCALE METALLIC MINING OPERATIONS OUTSIDE OF
MINERAL RESERVATIONS. - MINING CONTRACTORS OF LARGE-SCALE
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:

]Royatty|

‘ABOVE 40% UP TO 50% | 3.00%

Le pate ook |

ABOVE 50% UP TO60%|3.50% |
eee |

ABOVE 60% UP TO 70% | 4.00%

| ABOVE 70%



“(B) FOR LARGE-SCALE METALLIC MINING OPERATIONS WITHIN
MINERAL RESERVATIONS. - MINING CONTRACTORS OF LARGE-SCALE
METALLIC MINING OPERATIONS WITHIN MINERAL RESERVATIONS SHALL
PAY TO THE GOVERNMENT A ROYALTY EQUIVALENT THREE PERCENT (3%)
OF THE GROSS OUTPUT OF THE MINERALS OR MINERAL PRODUCTS
EXTRACTED OR PRODUCED BY THE MINING OPERATIONS, EXCLUSIVE OF
ALL OTHER TAXES;

“(C) FOR SMALL-SCALE METALLIC MINING OPERATIONS WITHIN OR
OUTSIDE MINERAL RESERVATIONS. - MINING CONTRACTORS OF SMALL-
SCALE METALLIC MINING OPERATIONS WITHIN OR OUTSIDE MINERAL
RESERVATIONS SHALL PAY TO THE GOVERNMENT A_ ROYALTY
EQUIVALENT TO ONE-TENTH (1/10) OF ONE PERCENT (1%) OF GROSS
OUTPUT;

“(D) WHEN USED IN THIS SECTION AND IN SECTION 151-B OF THIS
CHAPTER.

"(1) THE TERM ‘MARGIN’ SHALL MEAN THE RATIO OF INCOME FROM
MINING OPERATIONS BEFORE CORPORATE INCOME TAX TO GROSS
OUTPUT.

"(2) THE TERM '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 FOR MINING, PROCESSING, REFINING, TRANSPORTING,
HANDLING, MARKETING, OR ANY OTHER EXPENSES: PROVIDED, THAT OF
THE MINERALS OR MINERAL PRODUCTS SOLD OR CONSIGNED ABROAD BY
THE MINING CONTRACTOR UNDER COST, INSURANCE AND FREIGHT (CIF)
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) THE TERM ‘INCOME FROM MINING OPERATIONS’ SHALL MEAN
THE GROSS OUTPUT 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 FINANCIAL
AND 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 AND TECHNICAL ASSISTANCE AGREEMENT AND IN THE
APPLICABLE IMPLEMENTING RULES AND REGULATIONS;

“(E) ROYALTY PAYMENTS TO CLAIM OWNERS OF 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 AND 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

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

"(4) THE TERM ‘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. A new section designated as Section 151-B under Chapter VII, Title VI of the
National Intemal Revenue Code of 1997, as amended, is hereby inserted ad 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 32, CHAPTER V, TITLE Il OF THIS CODE:

r

MARGIN
MORE THAN 35% UP TO 40%

MORE THAN 40% UP TO 45% | 2% |

MORE THAN 45% UP TO 50% | 3% |

MORE THAN 60% UP TO 65% |

MORE THAN 65%

MORE THAN 70% UP TO 75% | 8% |

| MORE THAN 75% UP TO 80% | 9%

| MORE THAN 80



SEC. 5. Section 34(B) of Chapter VII, Title 1! of the National Internal Revenue Code of 1997,
as amended, is hereby further amended to read as follows:

"SEC. 34. Deductions from Gross Income. ~ x x x

"(A) Expenses. -

"XXX

"(B) Interest. —

"(1) xxx

"(Q) 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.

) WHEN USED IN THIS SECTION. ~

“THE TERM ‘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.

“THE TERM ‘ASSOCIATE’ SHALL MEAN ANY OTHER PERSON WHO
ACTS OR MAY ACT IN ACCORDANCE WITH THE DIRECTIONS, REQUESTS,
SUGGESTIONS, OR WISHES OF THE FIRST-MENTIONED PERSONS, AND THE
FIRST-MENTIONED PERSON IS AN ASSOCIATE OF THE SECOND-MENTIONED
PERSON.

“THE TERM ‘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.

“THE TERM ‘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 !S
PAYABLE.

“THE TERM ‘EQUITY’ SHALL MEAN THE GREATEST AMOUNT, AT ANY
TIME DURING AN INCOME YEAR, 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. ~

"XX

"(D) Losses. -

"XX

"(E) Bad Debts. —

"KKK

“(F) Depreciation. —


"XXX

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

"XX

"(H) Charitable and Other Contributions. —

"XXX

(I) Research and Development. —

"XX

"() Pension Trusts. ~ xx x

"(K) Additional Requirements for Deductibility of Certain Payments. — x x x

"(U) Optional Standard Deduction. ~ x x x

“(M) Premium Payments on Health and/or Hospitalization insurance of an
Individual Taxpayer. — xxx."

SEC. 6. Each Mining Operation Treated as a Separate Taxable Entity. — Each mining
operation, which is subject to a Mineral Agreement or Financial and Technical Assistance
‘Agreement 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 Financial and
Technical Assistance Agreement it holds or is a party to.

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

SEC. 7. 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 (EIT!) of government, and, for this purpose, shall be exempted from application of
the confidentiality clauses of the National intemal Revenue Code of 1997, as amended,
including Section 270 in relation to Section 71, to the extent of their participation in the EIT!

SEC. 8. Fiscal Regime Under Financial and 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 and Technical Assistance Agreements entered into by the government,

SEC. 9. 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 they 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 Financial and
Technical Assistance Agreements and Mineral Agreements

SEC. 10. Registration of Small-scale Miners. — All persons undertaking small-scale mining
activities shall register as miners with the Mining Board of the concemed local government
unit in accordance with Republic Act No. 7076, entitled "An Act Creating A People’s Small-
scale Mining Program and for Other Purposes". And with the Mines and Geosciences
Bureau (MGB) 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. 11. 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. 12. 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.

SEC. 13. Separability Claude. — 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. 14. Effectivity. — This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a newspaper of general circulation in the Philippines.

Approved,