Republic of the Philippines)
HOUSE OF REPRESENTATIVES!
Quezon City

Nineteenth Congress
First Regular Session

HOUSE BILLNO.373__

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
ESTABLISHING THE FISCAL REGIME FOR THE MINING INDUSTRY

EXPLANATORY NOTE

The Philippines is one of the world’s most mineral-rich countries, with nine million hectares
of its 30 million hectares total land area having high mineral potential.' With so much room
for growth, the mining industry has great potential to generate more revenues for the
government through taxes, provide employment opportunities. and build up the country’s gross
international reserves through the industry's mandated sale of gold to the Bangko Sentral ng
Pilipinas under Republic Act No. 7076, or the People’s Small-Scale Mining Act of 1991.

Optimum utilization of our minerals cannot be made possible due to gaps in our current laws
and regulations. The adverse effects of environmental degradation and climate change must
also be addressed to promote sustainable economic development and social equity. Despite
lifting the moratorium on the grant of mineral agreements imposed by Executive Order No. 79,
s. 2012 through President Rodrigo Roa Duterte’s Executive Order No, 130 last April 2021.
legislation on the mining fiscal regime remains imperative for a more equitable revenue-
sharing between the industry and the government.

Thorough discussions and consultations with all stakeholders during the 17" Congress yielded
House Bill No. 8400. which was passed on Third Reading. This proposed measure is the result
of further refinements and improvements introduced to said bill in the 18" Congress by the
House Committee on Ways and Means, under the leadership of this Representation, as House
Bill No. 6135.

This measure proposes the imposition of royalty payments of (1) three percent (3%) on gross
output of large-scale metallic mining operations within mineral reservations, (2) graduated
rates on the profit margin of large-scale metallic mining operations outside mineral
reservations, and (3) 1/10 of one percent (1%) of gross output of small-scale metallic mining
operations. A margin-based windfall profits tax gained on all mining operations shall also be
imposed. For tax purposes. small-scale miners must register with the Mining Board of the
concemed local government unit and the Mines and Geosciences Bureau.

+ Mines and Geosciences Bureau (March 2022)

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Additionally, ring-fencing is proposed to prevent the consolidation of income and expenses of
all mining projects by the same taxpayer, thereby ensuring that losses from other mining
projects could not be deducted from the more profitable ones. Thin capitalization shall also be
introduced so businesses will not depend on excessive debt funding, which may lead to high
interest expense deductions and the resultant reduction of corporate tax liability.

The bill also exempts mining contractors from the confidentiality clauses of the National
Internal Revenue Code of 1997, as amended, and institutionalizes the Philippine Extractive
Industry Transparency Initiative (PH-EITI). With the expected increase in mining activities
due to the lifting of the nine-year moratorium on the grant of new mineral agreements, an
institutionalized EITI shall provide a framework for the good governance of our mineral
resources and ensure transparency and accountability from the government and the extractive
industry. Better resource governance equates to higher revenue generation from the sector.

Lastly, the measure proposes to create a Natural Resource Trust Fund from the revenues
collected from the margin-based royalty to fund projects that will redound to the benefit of
local governments directly affected by mining activities. The trust fund shall serve as inter-
generation savings to protect the environment and provide the needs of host local government
units, given the non-renewable nature of mineral resources.

In view of the necessity to promote economic recovery amidst continuing threats to growth,
such as the COVID-19 pandemic, and to boost the mining industry’s potential contribution to
the country’s gross domestic product while safeguarding our mineral resources and the rights
of host communities, the passage of this bill is earnestly sought.

JOEY SARTE SALCEDA

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

HOUSE BILLNo,_ 373

Introduced by Representative JOEY SARTE SALCEDA

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. Section 34(B) of the National Internal Revenue Code of 1997, as amended, is
hereby amended to read as follows:

“SEC. 34. Deductions from Gross Income. — x x x

“(A) Expenses, —
“XXX

“(B) Interest. —

“(xxx

“(2)XxXx

“B)xxXx

“(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.

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(C)FOR PURPOSES OF THIS SECTION, THE TERM —

(1) 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 1
CIRCUMSTANCES OF THE MINING CONTRACTOR

(2) 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

(3) 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

(4) 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

(5) 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

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“(E) Bad Debis. ~
“XXX

“(F) Depreciation. —
"0x

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

“(H) Charitable and Other Contributions.
“XXX

“(1) Research and Development,
xxx

“() Pension Trusts. xxx
“(K) Additional Requirements for Deductibility of Certain Payments, ~x xx
“(L) Optional Standard Deduction. —x x x

SEC. 2. The chapter title of Chapter VII, Title V1 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. 3. The section title of 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. 4. A new section shall be inserted as Section 151-A of the National Internal Revenue
Code of 1997, as amended, to read as follows:

“SEC. 151-A. ROYALTY. - 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 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;

(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

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INCOME FROM MINING OPERATIONS IN ACCORDANCE
WITH THE FOLLOWING TABLE:

MARGIN ROYALTY
1% UP TO 10% 1.00%
ABOVE 10% UP TO 20% 1.50%
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 SMALL-SCALE METALLIC MINING OPERATIONS. —
MINING CONTRACTORS OF SMALL-SCALE METALLIC
MINING OPERATIONS SHALL PAY TO THE GOVERNMENT A
ROYALTY EQUIVALENT TO ONE-TENTH (1/10) OF ONE
PERCENT (1%) OF GROSS OUTPUT;

(C)FOR THE PURPOSES OF THIS SECTION, THE TERM —

(J) MARGIN SHALL MEAN THE RATIO OF INCOME FROM
MINING OPERATIONS BEFORE CORPORATE INCOME
TAX TO GROSS OUTPUT.

(2) 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;

(b)GENERAL AND ADMINISTRATIVE EXPENS
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
APPLICABL IMPLEMENTING RULES AND
REGULATION

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SE

(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 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 PRE-OPERATING PERIOD;

(g) INTEREST EXPEN: 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 OR
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 CHARG!

Ss

AND

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

(3) 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.”

Code of 1997, as amended. to read as follows:

“SEC. 151-B. WINDFALL PROFITS TAX —

. 5. A new section shall be inserted as Section 151-B of the National Internal Revenue

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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% ™%
MORE THAN 70% TO 75% 8%
MORE THAN 75% TO 80% 9%
MORE THAN 80% 10%

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
a separate taxpayer with respect to each and every Mineral Agreement or Financial or Technical
Assistance Agreement it holds or is a party to. 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
nonmetallic 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 the 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 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 these provide that terms and conditions resulting
from repeal or amendment of 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 for Taxation Purposes. ~ All persons engaged in
small-scale mining activities shall register with the Mines and Geosciences Bureau (MGB) and
with the Mining Board of the concerned local government unit in accordance with Republic

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Act No. 7076 or the “People’s Small-Scale Mining Act of 1991,” 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. Disposition of Royalties for the Natural Resource Trust Fund. ~ The provisions of
existing laws to the contrary notwithstanding, the revenues collected from the margin-based
royalty paid by the large-scale metallic mining operations outside of mineral reservations shall
accrue to the Natural Resource Trust Fund under this Act. The Bureau of Treasury shall create
a Special Account on said revenues and shall serve as its fund manager.

The Natural Resource Trust Fund shall be remitted to the Bureau of Treasury within the first
quarter of the succeeding income year. The fund shall redound to the benefit of provinces,
cities, municipalities, and barangays directly affected by mining operations which shall
commence three (3) years after the effectivity of this Act, and every six (6) years thereafter.

The Natural Resource Trust Fund shall be used by the local government unit concemed to
support educational programs, technological research programs of local relevance, disaster risk
management, rehabilitation of abandoned mines before the enactment of Republic Act No.
7942 or the “Philippine Mining Act of 195,” and health services programs of the communities
directly affected by mining activities:Provided, That the Department of Budget and
Management, in consultation with the Department of Environment and Natural Resources and
the Department of Finance, shall issue rules and regulations governing the allocation and
disbursement of the fund allocated to provinces, cities, municipalities, and barangays not later
than one hundred and eighty (180) days from the effectivity of this Act.

SEC. 12. Implementing Rules and Regulations. - The Department of Finance, after
consultation with other concemed 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. 13. Repealing Clause.

(A) The second paragraph of Section 5 of Republic Act No. 7942, otherwise known as the
Philippine Mining Act of 1995 is hereby amended to assign the Bureau of Internal
Revenue as the collecting agent of the payment of royalty.

(8) Section 13 of Department of Environment and Natural Resources Administrative Order
No. 2010-21 is hereby amended insofar as it governs the payment of 5% royalty by
contractors/permit holders/lessees within mineral reservations,

(C) Alll laws, acts, 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. 14. 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. 15. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in a newspaper of general circulation.

Approved,

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