REVENUE SHARING IN MINING: Is the Country getting its FAIR SHARE?

In 2011, the MGB reported that all mineral products extracted in the Philippines had a Gross Production Value of

Php163.2 Billion.

In his last SONA, the President noted that in 2010, of the Php145 billion worth of minerals extracted by mining companies, government received a mere “balato” of Php13.4 billion—approximately 9% of the total value.

How the President Sees It.

145

13.4

Gross Production (Value)

Total Taxes

“Bal-ato!”

Clearly, before we even start to look into how to increase government’s share in mining revenues, there is a need to correct President Aquino’s MISCONCEPTIONS about the taxes we pay.

GROSS VALUE (in Billion Pesos)

Large ScaleMetallic Mining 69.1 (47.5%)

Small ScaleGold Mining 42.9 (30%)Non-metallicMining 33.3 (22.5%)

TOTAL 145.3

#1 The Php145 Billion Gross Production Value (GPV) for 2010 should be disaggregated, as follows:

to show that small scale mining accounts for about 30% of the total value of minerals produced.

GROSS VALUE PRODUCTION COST* NET REVENUE

Large ScaleMetallic Mining 69.1 41.5 27.6Small ScaleGold Mining 42.9 12.9 30.0Non-metallicMining 33.3 16.6 16.7

Total 145.3 71.0 74.3

#2 The cost of production must also be considered and deducted from GPV to arrive at NET REVENUE:

----------------------------------*Assumes a production cost of 60% for metallic mines & 50% for non-metallic mines.

Gross Value Production Cost* Net Revenue

Taxes, Fees, and

RoyaltiesGov’t Share

Large ScaleMetallic Mining 69.1 41.5 27.6 11.2 40.1%

Small ScaleGold Mining 42.9 12.9 30.0 NO TAXES

PAID

Non-metallicMining 33.3 16.6 16.7 5.9 35%

TOTAL 145.3 71.0 74.3 17.1 23%

#3 Taxes, fees, and royalties collected by government should be computed against net revenue:

----------------------------------*Assumes a production cost of 60% for metallic mines & 50% for non-metallic mines.

0%

Large Scale Metallic Mining Small Scale Gold Mining Non-metallic Mining0

10

20

30

40

50

60

70

80

90

41.5

12.9 16.6

27.6

3016.7

11.26

05.9

2010 Mineral Production (Php145.3 Billion)

Production Cost Net Revenue Taxes Paid

0%

Corresponds to 40% of large scale mines’ net revenue from mining

How We Compare:

not i

n

in b

oth

(new

law

) (9)

AD and MR

in AD in MR AD and MR

MRRT Non-MRRT

Argentina Chile Peru Peru

Indonesia Philippines Australia South America PNG

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

13.014.5 15.2

18.0 18.7

16.014.9

18.3

15.4

18.016.9

13.6

Comparison of Country Effective Tax Rates (% of Gross Revenue)

• 85% of operating cost is sourced from local resources: ore, power, labor, cement, etc.

• Only 15% of operating cost are from importation: spare parts, oil, consumables, etc.

For every dollar produced by Large-Scale Mining:

MINING: Not your ordinary business

• As a global industry, mining requires an investment environment where risks and rewards are comparable from country to country;

• Countries that possess conducive and stable business environments are normally sought after by investors that can undertake and manage world-class mining operations.

Mining has an inordinately long gestationcompared to other business ventures

74.3

11.2

5.9

The Correct Revenue Sharing Picture

Net Revenue from Min-ing Large Scale MinesNon-Metallic Mines

Proper Interpretation

Gross Value

Production Cost*

Net Revenue

Taxes, fees, and

royaltiesGov’t Share

Large ScaleMetallic Mining 69.1 41.5 27.6 B 11.2 B 40.1%

Small ScaleGold Mining 42.9 12.9 30.0 B No Taxes

Paid 0%

Non-metallicMining 33.3 16.6 16.7 B 5.9 B 35%

Total 145.3 71.0 74.3 B 17.1 B 23%

Without Considering SSM 102.4 58.1 44.3 B 17.1 B 39%

*Considering 60% production cost for metallic mines & 50% for non-metallic