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[: RECEIVED”

Republic of the Philippines 2 oye WL 24 2019.
HOUSE OF REPRESENTATIVES
‘Quezon City

EIGHTEENTH CONGRESS
First Regular Session

2557

House Bill No.

Introduced by Representative Sharon S. Garin

EXPLANATORY NOTE

This measure seeks to rationalize and institute a singe fiscal regime
applicable to all mineral agreements. After a thorough discussions and
consultations with all stakeholders in the industry and government agencies in
the 17 Congress, the House has passed this bill into 3" reading. It is the
version where both the government can collect more revenues while the
mining sector will grow and will be developed.

Executive Order No. 79, issued sometime in 2012, imposed a
moratorium on the approval of the newmining permits. Hence, up to present,
there are no newly-issued mining permits that have caused failure to attract
quality direct investments in the mining industry.

There are about 15 projects in line worth billions of dollars that were on-
hold because of the moratorium under E.0. No. 79. These projects are
expected to generate more revenue and job opportunities. Some of these are
the $US5.9 billion US Tampakan project in South Cotabato; the Mindoro
Nickel's project worth $US2.5 billion; Philex Mining Silangan’s porject in
Surigao del Norte with estimatevalue of 752 billion for copper and 605 billion
for gold; the Nadecor’s Kingking project in Davao del Norte; Davao Oriental's
‘Asiaticus project; Lepanto Mining's FSE project in Benguet, and Masbate's
Philsaga Mining contract.

Due to the moratorium, mining merely contributes 1% of the national
economy.

TRAIN law under R.A.No. 10963 doubled the excise tax on mining
operations to 4% from 2%. Thereafter, industry stakeholders are now
clamoring for the lifting of the moratorium but the government must impose a


higher tax rate on mining. It is then imperative to increase the excise tax on
mining to finally lift the suspension

Hence, this bill imposes a one to five percent margin based royalty tax
on large-scale mines and a one to ten percent widnfall profits tax on income
from mining operations.The mining industry would now stand to pay the
government 9% in taxes

Ultimately, this bill aims to strengthen the mining sector so it can again
generate multi-billion dollar's worth of investiments in many communities that
had remained poor and isolated for many years



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

EIGHTEENTH CONGRESS
First Regular Session

2557
House Bill No.

Introduced by Representative Sharon S. Garin

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

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

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

“Sec. 151 TAX ON Mineral Products. —"

SEC. 3. Anew 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 ALL LARGE-SCALE METALLIC AND NON-METALLIC MINING
OPERATIONS OUTSIDE OF MINERAL RESERVATIONS. - MINING
CONTRACTORS OF LARGE-SCALE METALLIC AND NON-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 | 1.50%
20% :
ABOVE 20% UP TO| 2.00%

ABOVE 30% UP TO | 2.50%

ABOVE 40% UP TO| 3.00%

ABOVE 50% UP TO|3.50%

ABOVE 60% UP TO | 4.00%

ABOVE 70% ~ | 5.00%

B. FOR LARGE-SCALE METALLIC AND NON-METALLIC MINING
OPERATIONS WITHIN MINERAL RESERVATIONS. - MINING
CONTRACTORS OF LARGE-SCALE METALLIC AND NON-METALLIC
WITHIN MINERAL RESERVATIONS SHALL PAY TO THE
GOVERNMENT A ROYALTY EQUIVALENT TO 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 AND NON-METALLIC MINING
OPERATIONS WITHIN OR OUTSIDE MINERAL RESERVATIONS. —
MINING CONTRACTORS OF SMALL-SCALE METALLIC AND NON-
METALLIC 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

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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 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 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.

() 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 OR TECHNICAL
ASSISTANCE AGREEMENT.

SEC. 4. A new section designated as Section 151-B 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-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 II OF THIS CODE:

MARGIN: RATE

MORE THAN 35% UP TO | 1%
40% |
MORE THAN 40% TO|2%
45%.

MORE THAN 45% TO [3%
50%
MORE THAN 50% TO| 4%
55%
MORE THAN 55% TO | 5%
60%
MORE THAN 60% TO | 6%
65%



MORE THAN 65% TO|7%
70%
MORE THAN 70% TO|8%
75%
MORE THAN 75% TO|9%
80% E
MORE THAN 80% 10%

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

“SEC. 34. Deductions from Gross Income. ~ xxx
(A) Expenses. — xxx
(B) Interest. -

(1) x0

(2) xx.

(3) xxx

(4) LIMITATION OF INTEREST EXPENSE DEDUCTIONS FOR
MINING CONTRACTORS

() 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.

(i) | 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 PERSON, 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 IS PAYABLE;

THE TERM ‘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. — xxx

(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. ~ xxx

(J) Pension Trusts. — xxx

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

(L) Optional Standard Deduction. ~ xxx

(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 or 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 or Technical Assistance Agreement it holds or
is a party to.


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Ifa Mineral Agreement or Financial or 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 non-metallic 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 EITI.

SEC. 8. 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. 9. Vested Rights. - Valid mineral agreements and Financial or
Technical Assistance Agreements existing prior to the effectivity of this
Act that do not provide that any terms and conditions resulting from the
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 Financial or Technical Assistance Agreements,
shall continue to be governed by their existing terms and conditions.

SEC. 10. Registration of Small-Scale Miners. - All persons
undertaking small-scale mining activities shall register as miners with
the Mining Board of the concerned local government unit in accordance
with Republic Act No. 7076, “An Act Creating A People's Small-Scale
Mining Program And For Other Purposes” and with the Mines and
Geoscience 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.


warausune

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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 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. 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,

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