Mining Bane is Banefully

Sensationalized

Bienvenido “Nonoy” Oplas Jr.

Presentation at “Face-Off Mining: Boon or Bane?”

Sponsored by the UP Practice of Administrative Leadership

and Service (UP PALS NCPAG)

NCPAG Assembly Hall, UP Diliman, QC, 30 October 2014

OUTLINE

I. Mining Bane and Claims

II. Mining Stats and their

“Insignificance”

III. Mining Tax

IV. Conclusions

I. Mining Bane (1): Some Photos (Denuded mountains, silted rivers, water pollution…)

Bane (2): from CCCP

Source: To Mine or Not to Mine, CCCP (Esteban Godilano + Christian

Monsod), May 31, 2012

So, NO to mining unless…

Source: To Mine or Not to Mine, CCCP (Esteban Godilano + Christian

Monsod), May 31, 2012

Really, NO to mining unless…

Source: To Mine or Not to Mine, CCCP (Esteban Godilano + Christian

Monsod), May 31, 2012

Bane (3), from Ateneo School of Government ( ASoG):

“more mining means more poverty”

Source: Is There a Future for Mining in the Philippines?, ASoG, 2012

No mining, No poverty With mining, high poverty?

Rio Tuba mining housing

* When jobs and micro-business

prospects are present, people flock

to it. Zero or small pop‘n villages

later have ‗000s of residents.

* Demand for jobs always outstrip

supply. The higher the gap, the

higher the unempl… and poverty, is

―created‖ where there was none

before.

“Better develop agriculture than mining.”

Should be no conflict between the two. But labor productivity and

income per worker in LSMM larger than those in agriculture in

general. Thus, the sector already provides social and economic

services to the poor more than in agriculture in general

Source: Alonzo, Emmanuel, Issues Affecting the Mining Industry, Senate

STSR Taxbits, July-August 2012.

II. Mining Stats and their “Insignificance”

Source: MGB, http://www.mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pdf

Source 2009 2010 2011 2012 2013 2014 Q1

Gross Production Value (P Bill.) 106.1 145.3 163.2 144.6 157.1 21.98

Large-scale metallic mining MGB 42.8 69.1 88.0 97.8 99.0 21.94

Small scale gold mining BSP 36.8 42.9 34.1 1.2 0.3 0.04

Non-metallic mining MGB 26.5 33.3 41.1 45.6 57.8 na

Taxes, Fees, Royalties (P Bill.) 12,696 13.365 22.230 19.942 21.480 1.415

Collections by DENR-MGB 0.396 0.801 1.381 1.647 1.517 1.410

Excise Tax collections by BIR 0.718 1.306 6.986 2.206 2.494 na

Taxes collected by NGAs 10.579 10.188 12.886 14.322 16.237 na

Collections by LGUs 1.002 1.071 1.179 1.767 1.232 0.005

Mining investment fr. Revitalization

Prog. Under EO 270 ($ Million)

MGB 719.5 1,053 1,148 812.5 1,311.4 na

Gross Value Added, Mining (P Bill) NSCB 65.8 88.2 96.9 79.5 77.8 22.4

Mining GVA share to GDP (%) 0.8 1.0 1.0 0.7 0.7 0.8

Exports of Mineral Prods. ($ Mill.) BSP 1,470 1,929 2,840 2,337 3,417 664

Mineral X / Total X (%) 3.9 3.8 6.0 4.5 6.3 4.6

Exports of Non-Metallic ($ Mill.) BSP 156 162 177 145 206 77

Non Metallic X / Total X (%) 0.4 0.3 0.4 0.3 0.4 0.5

Employment in Mining & Quarry. DOLE 169,000 197,000 211,000 250,000 250,000 222,000

Mining Empl. / Total Empl. (%) 0.5 0.5 0.6 0.7 0.7 0.6

Source: Mines and Geosciences Bureau (MGB), DENR,

http://www.mgb.gov.ph/Files/Statistics/MineralIndustryStatistics.pdf

Mining Stats, Reformatted

See, Mining contribution is so small…

1. The contribution of mining in PH economy looks small. Just 1%

of GDP, only 0.6% of total employment, mineral exports just 5%

of total exports.

Yes, because mining’s “multiplier effect” is not counted.

Almost all industrial (manufacturing, construction) and services

(transportation, telecom, IT, real estate, etc.) activities use mining

products . No mineral products means almost no industrial

production, very little services sectors. (Ex: Public transpo will be

horses and carabaos, not trains, buses or jeepneys)

Analogy: GVA of poultry and pork/meat is small, maybe around

2% of GDP. But without chicken and pork, there will be little or no

activities in many other sectors -- restaurants, carinderias, litson

manok/liempo stalls, chicken cubes/fillet, other manufactured and

processed food.

2. Taxes, fees, royalties by mining looks small, only P20+ billion

out of around P1.5 trillion tax collections or just 1 percent of

total tax collections.

Yes, because mining’s “multiplier effect” is not counted.

Mining output enables more agri, industrial and services

sectors to produce more, and government collects taxes from

all the other sectors.

Besides, almost all of the taxes and fees mentioned are from

large-scale mining, very little from small scale mining.

Boon: Nickel Performance, Global Ranking

NICKEL PRODUCTION (000 MT)

COUNTRY Rank 2012 Rank 2011 RESERVES

Philippines 1 330,000 2 270,000 1,100,000

Indonesia 2 320,000 1 290,000 3,900,000

Russia 3 270,000 3 267,000 6,100,000

Australia 4 230,000 5 215,000 20,000,000

Canada 5 220,000 4 220,000 3,300,000

Brazil 6 140,000 7 109,000 7,500,000

China 7 91,000 8 89,800 3,000,000

Colombia 8 80,000 9 76,000 1,100,000

Cuba 9 72,000 10 71,000 5,500,000

South Africa 10 42,000 3,700,000

New Caledonia 6 131,000 12,000,000

Other Countries 332,000 200,600 7,667,100

TOTAL 2,127,000 1,939,400 74,867,100

Source: Mines and Geosciences Bureau (MGB)

B. LOCAL TAXES/FEES

• Business tax

• Real property tax

• Registration fees

• Occupation fees

• Community tax

• Other local taxes

C. OTHER PAYMENTS

• Special allowance as defined by

the Mining Act

• Royalties to indigenous cultural

communities

• Various documents/permits

required by MGB, LGUs

A. NATIONAL TAXES / FEES

* Corporate Income tax

* Excise tax

* Value-added tax

* Royalties (in mineral

reservations)

* Capital Gains tax

* Tax on interest payment to

foreign loan

* Tax on foreign stockholders

dividends

* Documentary stamp tax

* Vehicle registration tax

III. Mining Tax, Big Firms (MPSA/FTAA) (Like “animal hunting inside a zoo”)

D. MANDATORY SDMP & CSR

Mining Tax, 2010

source: Dr. Artemio Disini, presentation at the Philippine Economic Society

(PES) Conference, November 27, 2012, PICC, Manila.

The above table shows that:

* Actual contribution of large scale metallic mining (LSMM) to taxes

not just 9% but 13% of gross value production, as small scale gold

mining (SSGM) sub-sector does not pay any national tax, only small

local taxes and fees.

* After deducting production cost, 60% for metallic and 50% for non-

metallic, total taxes, fees and royalties paid to the government of

P11.9 billion in 2010 comprised 43% of LSMM’s net revenue.

* Government share of nearly P12 billion in 2010 alone, constituting

nearly one-half of LSMMs’ net revenue is big. It is hard to find other

sectors that are taxed this much.

* The statement that large scale mining is “not taxed enough” is not

valid. It is valid when referring to small scale mining.

2010 2011

LSMM NMM Total LSMM NMM Total

Gross Revenue 69.1 33.3 102.4 88.0 41.1 129.1

Less Operating Cost

(60% LSMM, 50% NMM)

41.5 16.6 58.1 52.8 20.5 73.3

Net Revenue 27.6 16.7 44.3 35.2 20.6 55.8

Taxes and Fees Paid * 11.9 1.5 13.4 22.0

Taxes/Net Revenue,

Percent

43.1 9.0 30.2 39.4

Taxes and Fees Paid by LSMM and NMM, 2010 and 2011, P Bill.

* 2010 tax breakdown source: Disini. Presentation at PES Conf., 2012

No breakdown of tax payment among LSMM, NMM and SSM at the MGB data.

At 39.4% combined payment by LSMM and NMM in 2011, and seeing their

proportional payment in 2010, it is safe to assume that LSMM paid about 50 of

their net revenues to the government.

* On top of taxes and fees paid, LSMM also required by RA 7942,

Chapter X, and DENR Administrative Order (DAO) 2010-21 (IRR

of RA 7942) LSMM to have Social Development and Management

Program (SDMP) for the communities where they are operating. In

2010 alone, this was more than half billion pesos from members of

the Chamber of Mines of the Philippines (COMP).

* Since SDMP (school, hospital, livelihood trainings, tractors, etc.)

is not counted as part of operating expenses, then it can be

considered as additional tax and fee that goes direct to the people

in the communities, not to the BIR, Congress and LGUs.

Monsod computation Realistic nos.

Potential metallic

mineral value

P36.0 trillion P36.0 trilion

Gross taxable profit P14.4 trillion P14.4 trillion

Government share (a) Excise tax: 2%

(b) Malampaya: 60%

(c) Average taxes

+ fees payment:

46 %

Projected tax collection (a) P288 billion

(she wrote P720 B)

(b) P8.64 trillion

(c) P6.62 trillion

“Underpayment” to

government

(b) – (a) = P8.35 trillion

(she wrote P7.92 trillion)

(b) – (c) = P2.02

trillion

―Using the Malampaya formula, the share of the government/Filipino people

would come out to P8.64 trillion. Using the 2-percent formula of the Philippine

Mining Act, our share is P720 billion—or eight hundredths of one percent (0.08

percent) of what we would have gotten using Malampaya. In effect, if all those

mineral resources had been extracted, under RA 7942, the loss to the Filipino

people would be P7.92 trillion.‖ – Winnie Monsod (PDI, August 9, 2013)

Wrong. (1) Based on taxes and fees paid by LSMM in 2010 (43%) and 2011

(about 50%), the tax multiplier to be used should be around 46%, not 2%

(2) Assuming an amendment to RA 7942 in mining taxation, a move from

excise tax of 2% ++ existing taxes and fees to a Malampaya revenue

sharing (government 60%, private 40%), potential difference in revenue

collection will only be around P2.02 trillion and not P8.35 or P7.92 trillion.

And if SDMP spending is included, difference will narrow down to perhaps

only P1.8 trillion.

(3), “adverse environmental effects of mining” applies mainly to practices by

SSM (Mt. Diwalwal for instance) and not by LSMM. Prof. Monsod was silent

about SSM in her article.

High-Potential

Potential High Tax Base: Of the country’s total land area of

30 million hectares…

Of which only 2%

currently covered by

LSMM contracts/permits

About 30% or 9 million

hectares are considered

high mining potential

With estimated inventory of: * 8.03 B tons COPPER; * 480.26 M tons IRON;

* 4.91 Bi tons GOLD; * 39.66 Mi tons CHROMITE;

* 0.81 Bi tons NICKEL; * 433.88 Mi tons ALUMINUM.

Worth some $1 trillion

Source:

Recidoro,

COMP

34.5%

40.8%

52.6%

54.7%

58.3%

58.8%

79.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Papua New Guinea

Chile

South Africa

Peru

Canada

Australia

MICC Tax Structure

Source: Halcon, Nelia, COMP’s EVP. “The MICC Proposed Fiscal Regime for Mining: An

Assessment”, July 2014

Computed Average Effective Tax Rate (AETR *), Selected Countries

* AETR is the ratio of the Net Present Value (NPV) of total tax collections over the

projected life of the mine to the NPV of the total project pre-tax net cash flows (discount

rate of 10%).

Arthur Laffer (and JM Keynes): the higher the tax rate, the

lower the tax revenue/collection

As tax rates approach 100%, private enterprises will either stop working, or they work but

understate output; tax assessors/collectors allow it in exch. for personal and financial gains.

• Mining boon: People benefit from mining even if taxes are zero, even if

they are not employed in the mining industry. From spoon and fork,

cellphones and laptops, cars and airplanes, they all came from mining.

“Bahay kubo” can hardly be built if there are no nails, hammer and bolo.

• Mining bane: environmental damage is often due to small scale mining

but blame is on large scale mining. Share to GDP, to total tax collection,

to total exports, employment and investments appear small and

“insignificant” because their multiplier effect is not counted.

• “No to mining whatsoever” is a non-option. “Tax mining as high as

possible” is next to non-option. It will either drive away the legal, large,

responsible mining companies, or force them to be corrupt,

underdeclare output in order to survive. Small-scale mining that are

hardly taxed and regulated will flourish.

• “We support mining but these (stringent and many) conditions should be

met…” is smoke cover to what they really mean: “No to mining.”

• Any tax hike proposal should compensate it with streamlining and

abolition of other taxes and charges.

IV. Concluding Notes