EIGHTEENTH CONGRESS OF THE } 
REPUBLIC OF THE PHILIPPINES 
}
F irst R e g u la r S essio n 
}
S E N A T E
S.B. No. 240
i m
 
s , t m -
€ > fitU  o( tljc g#rct?l(irp
’19 
JUL - 8  
P12 :00
RECEiV*
Introduced by SENATOR VICENTE C. SOTTO III
AN ACT AMENDING CHAPTER VII TITLE VI AND SECTION 151, AND 
CREATING NEW SECTIONS 151-A AND 151-B, OF REPUBLIC ACT 
NO.8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE 
CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES
EXPLANATORY NOTE
Section 2, Article XII of the Philippine Constitution provides that "all lands of 
the public domain, waters, minerals, coal, petroleum, and other mineral oils, 
all forces of potential energy, fisheries, forests or timber, wildlife, flora and 
fauna, and other natural resources are owned by the State." As owner of the 
resources such as minerals, the government seeks to exercise its police power 
to regulate mining.
There is a need to amend the existing mining fiscal regime and further enhance 
the equitable share of the government in the utilization of natural resources. A 
rationalized and a single fiscal regime applicable to all mineral agreements is 
sought as it promotes fairness. This complements the enacted Tax Reform for 
Acceleration and Inclusion (TRAIN) law which aimed to make the tax system 
simpler, fairer, and more efficient.


In view of the above, we propose to retain the royalty rate of five percent (5%) 
for those currently located inside a mineral reservation, and a phased-in rate 
for those outside mineral reservation, to wit:
1. On the first three years upon the effectivity of this Act, three percent 
(3%);
2. On the fourth year, four percent (4%);
3. On the fifth year and thereafter, five percent (5%).
Further to the above, we propose to retain the existing impositions such as the 
corporate income tax, excise tax. Indigenous People’s royalty, and local 
business tax to level the playing field among all other sectors. An additional 
government share when the basic government share is less than fifty percent 
(50%) of the net mining revenue is likewise proposed. 
Currently, the 
government gets an additional share under the Fl'AA fiscal regime only.
Furthermore, we are also introducing thin capitalization so that the mining 
contractors will not depend too much on debt funding which would result in 
high interest expense deductions, to reduce corporate income tax liability. In 
addition, for the government to maximize its share, ring-fencing per project is 
proposed in order for the contractor not to consolidate income and expenses of 
all mining projects by the same taxpayer, which practice results in losses from 
some mining projects being deducted from more profitable projects.
In the exercise of its fiscal policy making power, the State is entitled to collect 
taxes, royalties, and other forms of impositions as it may deem fit. Taxes are 
due since the mining contractor is engaged in a taxable activity. 
Royalty is 
imposed to compensate the State in the utilization of natural resources by 
mining contractors, while the proposed additional government share becomes 
due when prices and profits are high.


Under Executive Order (EO) No. 791 the government noted that the obligation 
of the mining contractors vary depending on whether they enter into a Mineral 
Product Sharing Agreement or a Financial Technical Assistance Agreement or if 
they are large or small scale miners. We seek to impose a uniform fiscal regime 
upon all as these impositions exist regardless of the nature of the agreement or 
the size of the mining contractor which are based on the same source, the 
minerals. Currently, only those within mineral reservations are being required 
to pay a royalty.
In light of the foregoing, the passage of this bill is earnestly sought.
VICENTE CL SOTTO III
1 In s titu tio n a liz in g  a n d  im p le m e n tin g  re fo rm s  in  th e  P h ilip p in e  M in in g  S e c to r, p ro v id in g  p o lic ie s  a n d  g u id e lin e s  to  
e n s u r e  e n v iro n m e n ta l p r o te c tio n  a n d  re s p o n s ib le  m in in g  in  th e  u tiliz a tio n  o f m in e ra l re s o u rc e s .


EIGHTEENTH CONGRESS OF THE } 
REPUBLIC OF THE PHILIPPINES 
} 
F irs t R e g u la r S essio n 
} * 1 2 3 4 5
S E N A T E
S.B. No. 240
iJJtlut ol tl3f fertrrtnrp
•19 
JUL-8 P12-.00
RECLi-^- — ^2 ------
Introduced by SENATOR VICENTE C. SOTTO III
AN ACT AMENDING CHAPTER VII TITLE VI AND SECTION 151, AND 
CREATING NEW SECTIONS 151-A AND 151-B, OF REPUBLIC ACT 
NO.8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE 
CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES
Be it enacted by the Senate and the House of Representatives of the 
Philippines in Congress assembled:
1 
Section 1. The chapter title of Chapter Vll Title VI of the National Internal
2 
Revenue Code of 1997 (NIRC), as amended, is hereby changed to TAXATION
3 
OF MINERAL PRODUCTS.
4 
Section 2. The section title of Section 151 of the NIRC, as amended, is
5 
hereby changed to EXCISE TAX ON MINERAL PRODUCTS.
6
7
8 
9
10
Section 3. 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-
11 
(A) ROYALTY RATES. - MINING CONTRACTORS FOR ALL METALLIC
12 
AND NON-METALLIC MINING OPERATIONS, WHETHER LARGE-SCALE


1 
OR SMALL-SCALE, SHALL PAY TO THE GOVERNMENT A ROYALTY
2 
EQUIVALENT TO:
3
4
5
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(1) IF WITHIN MINERAL RESERVATIONS, FIVE PERCENT (5%) OF 
THE MARKET VALUE OF THE GROSS OUTPUT OF THE 
MINERALS/MINERAL PRODUCTS EXTRACTED OR PRODUCED 
BY THE MINING OPERATIONS EXCLUSIVE OF ALL OTHER 
TAXES;
(2) IF OUTSIDE MINERAL RESERVATIONS;
10
11
(a) ON THE FIRST THREE (3) YEARS UPON THE EFFECTIVITY 
OF REPUBLIC ACT NO.________ , THREE PERCENT (3%);
12
(b) ON THE FOURTH YEAR, FOUR PERCENT (4%); AND
13
14
(c) ON THE FIFTH YEAR AND THEREAFTER, FIVE PERCENT 
(5%).
15 
(B) FOR PURPOSES OF THIS SECTION -
16 
(1) ‘GROSS OUTPUT’ SHALL MEAN THE ACTUAL MARKET VALUE OF
17 
MINERALS OR MINERAL PRODUCTS FROM EACH MINE OR
18 
MINERAL LAND OPERATED AS A SEPARATE ENTITY, WITHOUT
19 
ANY 
DEDUCTION 
FOR 
MINING, 
PROCESSING, 
REFINING,
20 
TRANSPORTING, 
HANDLING, 
MARKETING 
OR 
ANY 
OTHER
21 
EXPENSES: PROVIDED, THAT IF THE MINERALS OR MINERAL
22 
PRODUCTS 
ARE 
SOLD 
OR 
CONSIGNED ABROAD 
BY THE
23 
CONTRACTOR UNDER C.I.F. TERMS, THE ACTUAL COST OF
24 
OCEAN FREIGHT AND INSURANCE SHALL BE DEDUCTED:
25 
PROVIDED, 
FURTHER, 
THAT 
IN THE CASE OF 
MINERAL


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CONCENTRATES WHICH ARE NOT TRADED IN COMMODITY 
EXCHANGES IN THE PHILIPPINES OR ABROAD, SUCH AS 
COPPER CONCENTRATES, THE ACTUAL MARKET VALUE SHALL 
BE 
THE 
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.
11 
(2) ‘MINING CONTRACTOR’ SHALL MEAN A QUALIFIED PERSON
12 
ACTING ALONE OR IN CONSORTIUM WHO IS A PARTY TO A
13 
MINERAL 
AGREEMENT 
OR 
FINANCIAL 
OR 
TECHNICAL
14 
ASSISTANCE AGREEMENT (FTAA).
15 
(3) EACH MINING OPERATIONS/AREA SUBJECT OF A MINERAL
16 
AGREEMENT OR FTAA SHALL BE TREATED AS A SEPARATE
17 
TAXABLE ENTITY. A MINING CONTRACTOR SHALL BE TREATED
18 
AS IF A SEPARATE TAXPAYER WITH RESPECT TO EACH AND
19 
EVERY MINERAL AGREEMENT OR FTAA IT HOLDS OR IS A
20 
PARTY TO.
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IF A MINERAL AGREEMENT OR FTAA IS RENEWED, THE 
RENEWAL SHALL BE TREATED AS PART OF THE ORIGINAL 
AGREEMENT.”
24 
Section 4. A new section designated as Section 151-B under C hapter VII
25 
Title VI of the NIRC, as am ended, is hereby inserted and shall read as
26 
follows:
27 
“SEC. 151-B. ADDITIONAL GOVERNMENT SHARE. -
28


1 
(A) IN ADDITION TO THE TAXES IMPOSED UNDER THIS CHAPTER,
2 
THERE 
IS 
HEREBY 
IMPOSED 
FOR 
EACH 
TAXABLE 
YEAR 
AN
3 
ADDITIONAL GOVERNMENT SHARE WHICH SHALL BE THE AMOUNT
4 
TO BE PAID BY THE MINING CONTRACTOR WHEN THE BASIC
5 
GOVERNMENT SHARE IS LESS THAN FIFTY PERCENT (50%) OF THE
6 
NET MINING REVENUE.THE ADDITIONAL GOVERNMENT SHARE SHALL
7 
BE 
THE 
DIFFERENCE 
BETWEEN 
THE 
50% 
OF 
NET 
MINING
8 
REVENUEAND 
THE 
BASIC 
GOVERNMENT 
SHARE 
DURING 
THE
9 
CALENDAR YEAR.
10 
(B) FOR PURPOSES OF THIS SECTION -
11 
(1) THE ‘BASIC GOVERNMENT SHARE’ SHALL CONSIST OF ALL
12 
DIRECT TAXES, ROYALTIES, FEES AND RELATED PAYMENTS
13 
REQUIRED BY EXISTING LAWS, RULES AND REGULATIONS TO
14 
BE PAID BY THE CONTRACTOR. IT SHALL BE THE MINIMUM
15 
SHARE THAT GOVERNMENT SHALL RECEIVE DURING ANY
16 
CALENDAR YEAR. THE FOLLOWING NATIONAL AND LOCAL
17 
TAXES, ROYALTIES AND FEES PAID BY THE CONTRACTOR TO
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THE GOVERNMENT DURING A CALENDAR YEAR CONSTITUTE
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THE BASIC GOVERNMENT SHARE:
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(a) CONTRACTOR’S INCOME TAX;
(b) CUSTOMS DUTIES AND FEES ON IMPORTED CAPITAL 
EQUIPMENT;
(c) VALUE-ADDED TAX ON IMPORTED GOODS AND SERVICES;
(d) WITHHOLDING 
TAX 
ON 
INTEREST 
PAYMENTS 
ON 
FOREIGN LOANS;
(e) WITHHOLDING 
TAX 
ON 
DIVIDENDS 
TO 
FOREIGN 
STOCKHOLDERS;
(f) DOCUMENTARY STAMPS TAXES;
(g) CAPITAL GAINS TAX;
(h) EXCISE TAX ON MINERALS;


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(i) ROYALTIES 
FROM 
MINING 
OPERATIONS 
AND 
TO 
INDIGENOUS PEOPLES, IF APPLICABLE;
(j) LOCAL BUSINESS TAX;
(k) REAL PROPERTY TAX;
(l) COMMUNITY TAX;
(m) OCCUPATION FEES;
(n) REGISTRATION AND PERMIT FEES; AND
(o) ALL OTHER NATIONAL AND LOCAL GOVERNMENT TAXES, 
ROYALTIES, AND FEES AS OF THE EFFECTIVE DATE OF 
THE MINERAL AGREEMENT OR FTAA.
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RELATED PAYMENTS MADE BY THE CONTRACTOR FOR SPECIAL 
ALLOWANCE AND ROYALTY TO INDIGENOUS PEOPLES OR 
INDIGENOUS CULTURAL COMMUNITIES, IF APPLICABLE, AND 
WHICH ARE SUBJECT OF AGREEMENTS ENTERED INTO BY AND 
BETWEEN THE CONTRACTOR AND CONCERNED INDIVIDUALS OR 
PRIVATE PARTIES, AND WERE DULY APPROVED BY THE 
GOVERNMENT, SHALL BE CONSIDERED AS PART OF THE BASIC 
GOVERNMENT SHARE.
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20 
21
ANY VALUE-ADDED TAX ON EXPORTED PRODUCTS REFUNDED 
BY OR CREDITED TO THE CONTRACTOR SHALL NOT FORM 
PART OFTHE BASIC GOVERNMENT SHARE.
22 
(2) THE ‘NET MINING REVENUE’ SHALL MEAN THE GROSS OUTPUT
23 
LESS DEDUCTIBLE EXPENSES.
24
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THE FOLLOWING CASH EXPENSES SHALL BE ALLOWED FOR 
DEDUCTION FROM THE GROSS OUTPUT TO DETERMINE THE 
NET MINING REVENUE:
27
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(a) MINING, MILLING, TRANSPORT AND HANDLING EXPENSES 
TOGETHER WITH SMELTING AND REFINING COSTS OTHER


2
1
THANSMELTING AND REFINING COSTS PAID TO THIRD 
PARTIES;
3
4
(b) 
GENERAL AND ADMINISTRATIVE 
EXPENSES ACTUALLY 
INCURRED BY THE CONTRACTOR IN THE PHILIPPINES;
5
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(c) 
ENVIRONMENTAL 
EXPENSES 
OF 
THE 
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;
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(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;
17
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23
(e) ROYALTY PAYMENTS TO CLAIM OWNERS OR SURFACE LAND 
OWNERS RELATING TO THE CONTRACT AREA DURING 
THEOPERATING PERIOD, IF ANY;
(f) CONTINUING MINE OPERATING DEVELOPMENT EXPENSES 
WITHIN THE CONTRACT AREA AFTER THE PRE-OPERATING 
PERIOD; AND
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27
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(g) INTEREST EXPENSES CHARGED ON LOANS OR SUCH OTHER 
FINANCING-RELATED 
EXPENSES 
INCURRED 
BY 
THE 
CONTRACTOR SUBJECT TO THE FINANCING REQUIREMENT 
IN THE FTAA, WHICH SHALL NOT BE MORE THAN THE 
PREVAILING INTERNATIONALRATES CHARGED FOR SIMILAR


2
3
1
TYPES OF TRANSACTIONS AT THE TIME THE FINANCING 
WAS ARRANGED, AND WHERE SUCH LOANS ARE NECESSARY 
FOR THE OPERATIONS.
4 
Section 5. 
The NIRC, as amended, is hereby further amended by
5 
introducing a new Paragraph (4), under Section 34 (B), Chapter VII, Title II,
6 
which shall read as follows:
7 
“(4) LIMITATION OF INTEREST EXPENSE DEDUCTIONS FOR MINING
8 
CONTRACTORS.
9 
(i) IF A MINING CONTRACTOR HAS A DEBT-TO-EQUITY RATIO IN
10 
EXCESS OF 1.5 TO 1 AT ANY TIME DURING A TAXABLE YEAR,
11 
A DEDUCTION IS DISALLOWED FOR THE INTEREST PAID BY
12 
THE CONTRACTOR DURING THAT YEAR ON THAT PART OF
13 
THE DEBT THAT EXCEEDS THE 1.5 TO 1 RATIO FOR THE
14 
PERIOD THE RATIO WAS EXCEEDED.
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(ii) 
IF 
THE 
DEBT-TO-EQUITY 
RATIO 
OF 
A 
MINING 
CONTRACTOR EXCEEDS 1.5 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 
CONTRACTOR DOES NOT EXCEED THE ARM’S LENGTH 
DEBT AMOUNT.
21
(iii) IN THIS SECTION -
22
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27
‘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 
HAVING 
REGARD 
TO 
ALL 
THE 
CIRCUMSTANCES OF THE CONTRACTOR;


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1
‘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;
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8 
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12
‘DEBT’, IN RELATION TO A CONTRACTOR, MEANS THE 
GREATEST AMOUNT, AT ANY TIME DURING AN INCOME 
YEAR, OF THE DEBT OBLIGATIONS OF THE CONTRACTOR 
ON WHICH 
INTEREST IS PAYABLE AS 
DETERMINED 
ACCORDING TO INTERNATIONAL FINANCIAL REPORTING 
STANDARDS;
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‘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 A 
REPAYMENT OF MONEY IN RESPECT OF WHICH NO 
INTEREST IS PAYABLE;
20
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26
‘EQUITY’, IN RELATION TO A CONTRACTOR, MEANS THE 
GREATEST AMOUNT, AT ANY TIME DURING AN INCOME 
YEAR, 
OF 
THE 
EQUITY 
OF 
THE 
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;
27 
Section 6. The fiscal regime and revenue sharing arrangement provided
28 
herein and the applicable term s and conditions provided under existing laws


1 
shall be embodied in the mineral agreements and FTAAs entered into by the
2 
government.
3 
Section 7. Valid mineral agreements and FTAAs existing prior to the
4 
effectivity of this Act that do not provide that any terms and conditions
5 
resulting from repeal or amendment of any existing laws or regulations or
6 
from the enactment of a new law or regulation shall be considered a part of
7 
said mineral agreements and FTAAs, shall continue to be governed by their
8 
existing terms and conditions.
9 
Section 8. Implementing Rules and Regulations. -The Department of Finance,
10 
in consultation with other concerned government agencies, shall, within
11 
ninety (90) days from the effectivity of this Act, promulgate rules and
12 
regulations to implement the intent and provisions of this Act.
13
14 
Section 9. Repealing Clause. - All laws, decrees, executive orders, rules
15 
andregulations, or parts thereof, which are contrary to or inconsistent with
16 
this Act are hereby repealed, amended or modified accordingly.
17 
Section 
10. Separability Clause. 
- If any provision of this Act is
18 
declaredunconstitutional or invalid, other parts or provisions hereof not
19 
affected thereby shall continue to be in full force and effect.
20 
Section 11. Effectivity. - This Act shall take effect fifteen (15) days after its
21 
publication in the Official Gazette or in a newspaper of general circulation in
22 
the Philippines.
23 
Approved,