A review conducted by the International Monetary Fund (IMF) of the Philippines’ fiscal regime for mining observed that “one indication of low contribution of the mining sector to government revenue is that mining sector’s payments to government as a share of total taxes is less than the mining sector’s share of GDP”.

According to the IMF study while mining’s share of GDP in 2009 and 2010, were 1.3% and 1.6% respectively, total mining taxes as a share of total tax revenues of the National Government was only 1.04% and 0.98% in 2009 and 2010.

The IMF Report pointed to a number of factors that led to the low contribution, “the mining sector comprised mostly of small-scale mines do not pay a lot of tax, older mines that are in their twilight years, and a few new mines that are enjoying tax holidays”.

In the same report, the IMF proposed that the Philippines “rationalize the multiple mining regimes into a single regime” so that “going forward, a modified version of the FTAA regime should be the only regime available for future large mining projectsâ”. Currently, there exist three possible fiscal regimes for large mines: mineral production sharing agreements (MPSA) outside mineral reservations, MPSA within mineral reservations, and financial and technical assistance agreements (FTAAs).

In addition, the IMF recommends that “tax incentives for mining should be repealed, and that all domestic tax rules governing mining should be consolidated in the National Internal Revenue Code (NIRC)”. Presently, the Mining Act of 1995 mandates that mining activities are always included in the annual Investment Priorities Plan making it qualified for the various fiscal incentives that the Board of Investments (BOI) offers.

Finance Secretary Cesar V. Purisima welcomed the release of the IMF Report, “We thank our colleagues from the IMF for the review they have conducted. We agree that there is a need to rationalize the multiple mining regimes into a single regime that will be easy to administer, provides greater share to the government, streamlines the process of revenue sharing with local communities, and maintains the competitiveness of our country as an investment destination.”

“We are currently studying the IMF report’s specific recommendations, and this will serve as an important input as we work with Congress and the various stakeholders in proposing amendments to existing laws defining the fiscal regime on all mining activities, whether large or small-scale. But some of the proposals, like the abolition of fiscal incentives, are already contained in the Fiscal Incentives Rationalization Bill that the Department of Finance is advocating”, Purisima added.

Executive Order No. 79 suspended the grant of new mineral agreements until a legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect.