Mine tax rule tightened

MINING FIRMS operating in the Philippines under financial or technical assistance agreements (FTAA) must pay taxes throughout the duration of their contract with the government, even during the cost recovery period provided by law, the tax bureau has said.

Revenue Memorandum Circular (RMC) No. 17-2013 dated Feb. 15, which takes effect “immediately,” clarifies a provision under Republic Act (RA) No. 7942 or the Philippine Mining Act of 1995 on collection of the government’s share in mineral agreements, in particular FTAAs.

FTAAs — the only arrangements that allow 100% foreign ownership in mining ventures — involve a 50-50 revenue-sharing arrangement with the government.

RA 7942 states that the government’s share in FTAAs consists of the contractor’s corporate income tax; withholding tax from foreign stockholders; the 2% excise tax on mineral products; as well as all other taxes, duties, and fees under Philippine laws.

RA 7942 provides that, in consideration of expenses incurred by contractors in pursuing mining ventures, “collection of government share in financial or technical assistance agreement shall commence after the financial or technical assistance agreement contractor has fully recovered its pre-operating expenses, exploration, and development expenditures…”

It further states that recovery period ends five years from start of commercial production of the mine covered by FTAA “or at a date the aggregate of net cash flows from mining operations is equal to the aggregate of its pre-operating expenses, whichever comes first.”

TAXPAYER’S BURDEN
The Bureau of Internal Revenue (BIR) said in its issuance, however, that non-collection of government share in the recovery period provided by the Mining Act “is not tantamount to an express grant of tax exemption.”

“It is a governing principle in taxation that tax exemptions must be construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law,” the bureau stressed.

“Accordingly, FTAA contractors are liable to pay the taxes due under the NIRC (National Internal Revenue Code) and existing rules and regulations during and after their ‘recovery period.’ This payment is in the nature of compliance with tax obligations and not in the nature of settling the ‘government share’ under the FTAA.”

The only exemptions that may be considered, the issuance noted, are those expressly provided for under the Mining Act, such as income tax holidays provided for in the Omnibus Investments Code. –Bettina Faye V. Roc, Reporter, Businessworld

Sought for comment yesterday, Jimbo B. Gulle, spokesperson of the Chamber of Mines of the Philippines, said in a text message: “We will have to get the BIR document and study it further before we can properly reply.”
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