Republic of the Philippines
House of Representatives
Quezon City

Eighteenth Congress
First Regular Session

House Bill No. 288

Introduced by Representative:
Estrellita B, Suansing and Horacio P. Suansing, Jr.

EXPLANATORY NOTE

‘The Philippines is an economy with abundant natural resources.
According to Asian Development Bank, the country is considered to be the fifth
most mineral-endowed country in the world. However, the overall contribution of
metallic mining to the gross domestic product (GDP) is small at less than half a
percent on average in the last five years.!

The significant contribution of the mining industry to the national
economy is dependent upon the public policies implemented. Mining policies
should allow the industry to improve as well its contribution to economic growth
and development. The issuance of Executive Order (EO) No. 79 set the platform
for reform including the amendment to the mining fiscal regime. EO 79 recognizes
the need to increase the contribution of the revenues from the mining industry
as it mandates for a new law on mining fiscal regime to take effect before granting
mining permits to new and pending applicants. The issuance of EO 79, therefore,
is a catalyst to a more equitable sharing of revenue between the industry and the
government. It signals the need to formulate an updated mechanism in promoting
the social and economic welfare of the country through a new legislation
rationalizing existing fiscal regime.

Presently, for large mines, mining contracts offer varying fiscal regimes
and, therefore, fiscal burden are differentiated. The fiscal regime depends on
whether the mine is operating in a mineral reservation and whether the mine is
operated under a Mineral Production Sharing Agreement (MPSA) or Financial and
Technical Assistance Agreement (FTAA). To date, almost all mining contracts are
under MPSA, while those in mineral reservations are composed mainly of nickel
mines. All FTAA agreements are for mines outside mineral reservations.

‘The complex and differentiated fiscal regime currently accorded to the
mining sector is the reason for this proposed bill. A rationalized and a single fiscal
regime applicable to all mineral agreements and FTAA is sought as it promotes
fairness. The proposal under this bill shall be applicable to all existing and
prospective large metallic, non-metallic and small-scale mines, and shall be
applied to all mines regardless of whether the mine is located outside or inside a

+ Source: The Fourth PH-EITI Report_December 2017


mineral reservation. This should be viewed as a package where it is structured
to satisfy the objectives of the government for a reasonable increased share
without compromising the mining sector’s need for reasonable return on its
investment.

Some of the key provisions of this bill are the following:

1) Impose a three percent (3%) royalty tax on large-scale mining
operations located within mining reservation areas;

2) Impose a margin-based royalty tax on large-scale mining operations
outside mining reservation areas ranging from 1% to 5%, as the case
may be;

3) Impose a royalty tax on small-scale mining operations equivalent to

one-tenth of one percent (1/10 of 1%) of gross output; and

Impose an additional margin-based tax on windfall profits gained from

mining operations ranging from 1% to 10%, as the case may be.

4)

‘Thin capitalization will be introduced in order for the businesses not to
depend on excessive debt funding which would result in high interest expense
deductions, and thereby reducing corporate tax liability. Furthermore, for the
government to maximize its share, ring-fencing per project is proposed. This is to
prevent consolidation of income and expenses of all mining projects by the same
taxpayer, hence, losses from other mining projects could not be deducted from
more profitable projects.

Additionally, this bill proposes to exempt mining contractors for all metallic
and non-metallic mining operations, whether large- or small-scale, from the
application of the confidentiality clauses of the National Internal Revenue Code
of 1997, as amended, for the purpose of complying with the requirement of the
Extractive Industries Transparency Initiative.

Finally, this bill proposes to require small-scale miners to register with the
Mining Board of the concerned local government unit and the Mines and
Geosciences Bureau. Such registration entails the securing of a Tax Identification
Number from the Bureau of Internal Revenue. The Mining Board is then required
to submit an annual report to the Mines and Geosciences Bureau of all small-
scale mining contracts for small-scale utilization of a plot of mineral land
including the respective production outputs, taxes and fees paid.

This proposed measure has been filed during the 17% Congress and
approved the Third and Final Reading as House Bill No. 8400. In view of the
foregoing, the immediate passage of this bill is earnestly sought.

REP. ESTRELLITA B. SUANSING REP. noragié P. SUANSING, JR.
1st District, Nueva Ecija 2n4 District, Sultan Kudarat


Republic of the Philippines
House of Representatives
Quezon City

Eighteenth Congress
First Regular Session

House Bill No. 28

Introduced by Representatives
Estrellita B. Suansing and Horacio P. Suansing, Jr.

AN ACT ESTABLISHING THE FISCAL REGIME FOR 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 (NIRC), 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 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. 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 METALLIC AND NONMETALLIC
MINING OPERATIONS OUTSIDE OF MINERAL
RESERVATIONS SHALL PAY TO THE GOVERNMENT
A MARGIN-BASED ROYALTY ON INCOME FROM


(B)

(c)

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%
30%
ABOVE 30% UP TO 2.50%
40%
ABOVE 40% UP TO 3.00%
50%
ABOVE 50% UP TO 3.50%
60%
ABOVE 60% UP TO 4.00%
70%
ABOVE 70% 5.00%

FOR LARGE-SCALE METALLIC AND NONMETALLIC
MINING OPERATIONS WITHIN MINERAL
RESERVATIONS. - MINING CONTRACTORS OF
LARGE-SCALE METALLIC AND NONMETALLIC
MINING OPERATIONS 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;
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;

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


(2

(3)

OPERATIONS BEFORE CORPORATE INCOME
TAX TO GROSS OUTPUT.

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 ARE 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
COMMODITYEXCHANGES.

THE TERM ‘INCOME FROM MINING
OPERATIONS’ SHALL MEAN THE GROSS
OUTPUT LESS DEDUCTIBLE EXPENSES,
WHICH INCLUDES:

(a) MINING, MILLING, TRANSPORT AND
HANDLING EXPENSES TOGETHER WITH
SMELTING AND REFINING COSTS
OTHER THAN SMELTING AND REFINING
COSTS PAID TO THIRD PARTIES;


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(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 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
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


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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 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 40% 1%
MORE THAN 40% TO 45% 2%
MORE THAN 45% TO 50% 3%
MORE THAN 50% TO 55% 4%



MORE THAN 55% TO 60% 5%
MORE THAN 60% TO 65% 6%
MORE THAN 65% TO 70% T%
MORE THAN 70% TO 75% 8%
MORE THAN 75% 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 x x

“(A) Expenses. -

Ska

“(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

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.


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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 TERN ‘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.


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“(C) Taxes. -
“xxx

“(D) Losses. —
“xxx

“(E) Bad Debts. ~
“xxx

“(F) Depreciation. -
“xx

“(G) Depletion of Oil and Gas Wells and Mines. ~
“xxx

“(H) Charitable and Other Contributions. -

“KxXx

“(I) Research and Development. -
“xxx

“(J) Pension Trusts. - x x x

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

“(L) Optional Standard Deduction. ~ x x x

“(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


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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 EITI.

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 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 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.

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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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