OBG talks to Eulalio Austin Jr, President & CEO, Philex Mining Corporation

Interview: Eulalio Austin Jr

What reforms are needed to accelerate upstream activities and incentivise investment?

EULALIO AUSTIN: Although the Mining Act of 1995 effectively covers the mining industry, harmonising national policy and local government codes remains a priority. In addition, there is a need to fix the tax regime to ensure an equitable sharing of profits between the government and mining investors and boost international competitiveness of the sector.

Using the internationally accepted Average Effective Tax Rate formula, the Philippine government’s share of mining revenues under the current mining fiscal regime is about 60%, compared to between 40% and 45% among global industry leaders such as Chile, Peru, Australia, Canada and the US. According to the IMF, who conducted the comparison, the existing Philippine tax structure “is a tough regime for investors compared to fiscal regimes of other countries” and is “not competitive internationally”. A globally competitive fiscal regime for our mining industry will mean higher GDP, more jobs, more investment, more revenue and earnings.

How can the rationalisation of the revenue sharing scheme for Mineral Production Sharing Agreements (MPSAs) affect the sector’s attractiveness?

AUSTIN: If one looks at the existing tax regime for mining companies, it is comprised of an excise tax of 2%, a corporate income tax of 30% and royalties paid to the indigenous people of 1-1.5%. These are the major taxes currently implemented aside from property tax. The ongoing tax proposal by the government aims to increase the excise tax, and although the sector recognises ownership of minerals on the ground by the state and agrees to equitable sharing, the rates should be competitive, sustainable and transparent.

As a sector, we agree to a review of the excise tax, however, the new number should be competitive in comparison with other regimes abroad. Looking at permits in the country, there is a MPSA for local companies and a Financial or Technical Assistance Agreement (FTAA) for foreign companies, with the former being slightly more advantageous as it provides some flexibility. Since the FTAA stipulates a 50:50 sharing on the profit, the proposed revenue sharing scheme could move towards that direction, that is, an equitable sharing of profits, a proposal the local industry could adjust to.

How can the Philippines better regulate the proliferation of small-scale and informal mining?

AUSTIN: The main issues to address are the grey areas surrounding the regulatory aspects of small-scale mining, particularly the issuing of permits by the local government officers or provincial governors. Although the local governments issue permits, they usually do not have the capabilities to monitor or regulate small-scale mining companies. It would be commendable if there was one regulatory agency that would focus on small-scale mining, for instance, the Mines and Geoscience Bureau, as it has the capacity and expertise to monitor small-scale mining activities. The environmental effects and lack of worker safety generated by small-scale mining can only be mitigated to the extent that the small-scale miners are properly monitored.

What must be done to improve coordination between national policy and local law making?

AUSTIN: The main issue is the allocation of royalties to the Local Government Units (LGUs). Under the current distribution procedure, 60% of mining royalties go to the national government and 40% go to the local governments. There is a delay before the local governments receive their share, as it is first remitted to the national treasury. If this was distributed to the LGUs directly, then they would not raise issues against national government policies. The current system is problematic because LGUs fund their social programmes from the allotment of the national wealth tax; therefore, the delay in the tax allotment also delays their projects. If their tax share was remitted immediately, then they would not raise so many issues preventing mining.