New mining fiscal regime approved

By Alyssa Nicole O. Tan, Reporter

THE HOUSE Ways and Means Committee on Wednesday approved the new fiscal regime for the mining sector, as well as the fourth package of the Comprehensive Tax Reform Program (CTRP) that includes the removal of the excise tax exemption on pickup trucks.

Albay Rep. Jose Maria Clemente S. Salceda, who chairs the committee, said the measure will generate an additional P37.5 billion in revenues for the government in the first full year of its implementation.

In a statement, he said the committee adopted the Department of Finance (DoF) proposed version, which would “bring the country’s effective tax rate on mining (considering all taxes) to 51%, up from 38% under the current system.”

“That brings us closer to the middle of the pack among major mining countries, instead of near the bottom of the list. The 51% is a good number, because it brings us closer to Australia’s effective tax rate, at around 51% as well, counting royalties…This proposal brings us closer to Australia and Indonesia, which are our regional comparatives,” Mr. Salceda said.

Under the approved version, a royalty tax of 5% will be slapped on the market value of gross output of all large-scale mining operations.

“A minimum government share of 60% of net mining revenues, including all government taxes, fees, and charges, will be imposed on mining operations,” Mr. Salceda said.

A 10% export tax will also be levied on the market value of mineral ore exports, Mr. Salceda said, a move aimed at encouraging domestic processing of mineral products.

The bill also seeks to improve transparency through a government system for the public disclosure and scrutiny of all mining tax and revenue data in the extractives value chain.

“It will also offset the reputational issues caused by our withdrawal from the Extractive Industries Transparency Initiative, a global standard for the good governance of oil, gas and mineral resources, which the country was a voluntary party to until its withdrawal in June this year,” Mr. Salceda said.

TAX REFORMAt the same hearing, Mr. Salceda said Finance Secretary Benjamin E. Diokno proposed several changes to the Package 4 of the CTRP, formerly known as the Passive Income and Financial Intermediary Taxation (PIFITA). The approved version will incorporate the DoF’s proposals.

In his Aug. 22 letter to Mr. Salceda, Mr. Diokno said the DoF-proposed bill will generate an estimated incremental revenue of P18 billion in 2023 and P7.9 billion in 2024, before tapering off in the succeeding years.

“With the reforms introduced under Package 4 and the expected developments in the financial and capital markets, the bill can generate reliable revenue streams for the government in the long term,” Mr. Diokno said.

Under Package 4 of the CTRP, the DoF proposed to cut the number of tax rates on passive income and financial intermediaries to 52, from 74 currently, and to make the tax rates more competitive with the country’s Southeast Asian neighbors.

It also seeks to impose a uniform rate of 15% on interest income, royalties, dividends and capital gains, on the sale of shares of stock not traded in the local bourse.

“Interest income derived by FCDUs (foreign currency deposit units) were exempted from income tax in the year 1974 to encourage foreign currency deposits in order to build up the Philippines’ foreign currency reserves,” Nueva Ecija Rep. Mikaela Angela B. Suansing, who chaired the technical working group, said during the hearing.

“Now that we are operating in a different economic environment, the DoF asserts that there is no longer a need to incentivize FCDUs. From this proposal, the DoF expects the government to gain up to P10 billion worth of revenues in the first year and P66.6 billion in revenues from 2023 to 2028.”

Also, the Finance department proposed a single gross receipt tax rate of 5% on banks, quasi-banks, and other nonfinancial intermediaries, and the removal of the distinction between lending and non-lending income. A 5% tax will be imposed on all types of income, except for dividends, equity shares and net income of subsidiaries.

The DoF seeks to impose a uniform 2% tax of premiums for pre-need, pension, life insurance and health maintenance organizations.

It proposed the adoption of a stock transaction tax on the trading of shares of stock in a domestic corporation that is listed and traded on a foreign stock exchange, instead of the 15% capital gains tax.

The DoF said it wants to rationalize documentary stamp tax (DST) on financial transactions, such as expressing the DST in percentages, unifying all nonlife insurance rates, and removing minor provisions with low revenues.

It also wants to resolve taxation issues on collective investment schemes, as well as adopt tax administration provisions.

“We earnestly hope that our proposed changes in Package 4 will be considered to address the issues confronting the country’s capital and financial markets taxation,” Mr. Diokno said.

TAX ON PICKUP TRUCKSMr. Diokno also proposed the removal of the excise tax exemption on pickup trucks, saying this will generate P52.6 billion in additional revenues from this year to 2026.

Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law exempted pickup trucks from excise tax to help small business owners and professionals.

However, Mr. Diokno noted the Department of Trade and Industry (DTI) had noticed some manufacturers modified pickup trucks to serve as passenger, leisure and sports vehicles, allowing them to circumvent the law. 

“DTI data showed that it has led to inequity among industry players and resulted in a sharp decline in sales of other vehicle products,” Ms. Suansing said.

The Package 4, formerly known as PIFITA, is one of the 19 priority legislative measures of President Ferdinand R. Marcos, Jr.

The PIFITA bill was approved by the House of Representatives of the 18th Congress on Sept. 9, 2019, but deliberations at the Senate were put on hold due to the coronavirus pandemic.