Saturday, January 24, 2015


The comfort is in the fact that President Aquino’s term ends in about 1.5 years. It is presumed mining permits will be issued to new operations under a new president.

Otherwise, we will find ourselves in this weird situation where the president stands pat on denying permits to new mining companies but at the same time his government intends to deny tax perks to operating firms.

Without new mining companies to tax, the economy will lose practically all mines. Mines have economic lives of their own.

They are usually extended by heavier investments in searching for new deposits.

Little consideration is given by the state to the fact that nearly all mining companies are funded by public investments through the stock exchange.

The investors took a big risk. They deserve bigger rewards. Strangely, the state is taking back the rewards by withdrawing tax incentives. It’s like Indian giving.

It is true that profits from successful mining operations can stagger the imagination. But mining may be considered a “feast and famine” industry. It nearly completely depends on world metal prices settled in London Metal Exchange (LME)

There could always be times when production costs are higher than the price of the metal or ore. The investors tighten their belts and wait for better times. They always come anyway.

Regulators do not seem to come to grips with the fact that mining is the most risky business in the world. An owner of groups of owners of a large mineral concession can dig thousands of exploratory holes to determine whether or not commercial quantities of ore exist.

History is replete with successes and failures. The failures leave the investors high and dry. Successes do not need explanation. 

A failed mine and a successful mine both pay taxes to the state. Obviously to encourage faster development, the state draws up a long list of perks for the mining industry.

It went far beyond perks when the Supreme Court, realizing the inadequacy of Filipino capital, circumvented the Constitutional limit of 40 percent foreign equity in mining by allowing full foreign ownership under a financial-technical agreement with the government.

The recognition by the state of the necessity of allowing full foreign ownership of Philippine mining operations is admission of the importance of mineral resources exploration to the economy in many ways: First is the heavier tax imposed on the industry. Second and clearly more important is the money it brings in plus the employment it creates.

Now, the state wants the industry stripped of tax perks. Why the perks in the first place? They are effectively subsidies that – in other sectors of the economy – breed incompetence and inefficiency.

The state might examine more thoroughly the benefits of perks it provides to many industries. Are the amounts lost compensated by the products produced and employment created?

Nobody really knows. Nobody wants to know. 

The fact that the tax effort of the administration is at more than 14 percent should not leave the revenue agencies complacent.

However, where they feel imposing taxes – earlier prohibited by law – can only further reduce the budget deficit and public borrowings – should be tempered with compassion.

The Aquino government cannot spend enough such that growth tends to get slower. This makes less urgent the imposition of a tax on mining.

Taxation should be uniform. It should not be imposed in times of prosperity as if growth must pay a price. In the best of times and in the worst of times (as Charles Dickens said in his Tale of Two Cities), the uniformity of taxation should always prevail. What has been given cannot be taken away.

Collecting heavier taxes in an industry that goes through peaks and valleys like mining is punishing success as if the benefits of being so are not shared with government in many other ways but not always in the form of a heavier tax.

The impermanence of policy is not vital to the creation of an attractive business climate.

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