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Republic of the Philippines pat) LS oe 1M

HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

House Bill No.

Introduced by HON. RODRIGO A. ABELLANOSA

EXPLANATORY NOTE

Mining has been found to have a significant impact on climate change but it is
undeniable that the nation’s economy, not to mention the livelihood of many
Filipinos, depend largely on this industry. This bill seeks to rationalize the mining
industry's fiscal regime in order to 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.

‘This bill proposes graduated rates of royalties. and windfall profits tax on top of the
current taxes being imposed on the mining sec.or, thereby amending Chapter VII of
the National Internal Revenue Code.

In view of the foregoing, passage of this bill is eamnestly sought.

RODRIGO A. ABELLANOSA


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

18 Congress
First Regular Session

House Bill No. 560

Introduced by HON. RODRIGO A. ABELLANOSA

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 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 Section 151 of Chapter VII, Title V1 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. - 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 AND NONMETALLIC MINING
OPERATIONS OUTSIDE OF MINERAL RESERVATIONS. - MINING
CONTRACTORS OF LARGE-SCALE METALLIV AND NONMETALLIC
MINING OPERATIONS OUTSIDE OF MINERAL RESERVATIONS SHALL
PAY TO THE GOVERNMENT A MARGIN-BASED ROUALTY ON INCOME
FROM MINING OPERATIONS IN ACCORDANCE WITH THE FOLLOWING
TABLE:

MARGIN ROYALTY

1% UP TO 10% 1.00%



ABOVE 10% UP TO 20%
ABOVE 20% UP TO 30% 2.00%

ABOVE 30% UP TO 40% 2.50%

ABOVE 40% UP TO 50% 3.00%

ABOVE 50% UP TO 60% 3.50%

ABOVE 60% UP TO 70% 4.00% =

| ABOVE 70% 5.00%

“(B) FOR LARGE-SCALE METALLIC AND NONMETALLIC MINING
OPERATIONS WITHIN MINERAL RESERVATIONS. - MINING
CONTRACTORS OF LARGE-SCALE METALLIC AND NONMETALLIC
MINING OPERATIONS WITHIN MINERAL RESERVATIOS 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 AND NONMETALLIC MINING
OPERATIONS WITHIN OR OUTSIDE MINERAL RESERVATIONS. - MINING
CONTRACTORS OF SMALL-SCALE METALLIC AND NONMETALLIC
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 EPENSES WHICH
INCLUDE:

"(A) MINING, MILLING, TRANSPORT AND HANDLING EXPENSES
TOGETER 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 OPERATIG
PERIOD, IF ANY;

“(F) CONTINUING EXPLORATION AND DEVELOPMENT EXPENSES
WITHIN THE CONTRACT AREA AFTER THE PREOPERATING 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;

"() TACES, 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 Internal Revenue Code of 1997, as amended, is hereby inserted ad

shall read as follows:

"SEC.151-B. WINDFALL PRODITS TAX. -

"(A) IN ADDITION TO THE TACES 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 ACCORDACE WITH
THE FOLLOWING TABLE: PROVIDED, THAT IT SHALL BE DEDUCTIBLE
FROM TAXABLE INCOME, AS DEFINED IN SECTION 32, CHAPTER V,

TITLE 0! OF THIS CODE:

MARGIN RATE
MORE THAN 35% UP TO 40% 1%
MORE THAN 40% UP TO 45% |2%
MORE THAN 45% UP TO 50% 3%
MORE THAN 50% UP TO 55% 4%
MORE THAN 55% UP TO 60% 5%
MORE THAN 60% UP TO 65% 6%
MORE THAN 65% UP TO 70% TM%
MORE THAN 70% UP TO 75% 8%
MORE THAN 75% UP TO 80% 9%
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. -x xx

"(A) Expenses. ~
"KxXx

"(B) Interest. —
“(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) 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 IS PAYABLE.

“THE TERM ‘EQUITY’ SHALL MEAN THE GREATEST AMOUNT, AT
ANY TIME DURING AN INCOME YEAR, OF THE MINING CONTRACTOR AS
DETERMINED ACCORDING TO INERNATIONAL 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

"(l) Research and Development. —



"xxx
"(J) Pension Trusts. ~x x x
"(K) Additional Requirements for Deductibility of Certain Payments. - x x

"(L) Optional Standard Deduction. —x xx
"(M) Premium Payments on Health and/or Hospitalization insurance of
an Individual Taxpayer. —x x x."
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 Internal Revenue Code
of 1997, as amended, including Section 270 in relation to Section 71, to the extent
of their participation in the EITT.

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 sall 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 concerned
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 tac 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. Repeating 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,