Open-MINEded ka ba? forum

Sponsored by UP MINERS

College of science auditorium, UP Diliman,

22 September 2015

Bienvenido Oplas Jr. President, Minimal Government Thinkers, Inc.

Fellow, South East Asia Network for Development (SEANET)

Income Tax Witholding tax, non-residents

Value-added tax,

GST

Corporate Personal Dividends Interest

1. Brunei 20 0 0 15 0

2. Singapore 17 20 0 15 7

3. Cambodia 20 20 14 14 10

4. Thailand 20 35 10 15 10

5. Vietnam 22 by 2014 20 by 2016

35 0 5 10

6. Laos 24 24 10 10 10

7. Malaysia 25 24 by 2016

26 25 by 2015

0 15 6

8. Indonesia 25 30 20 20 10

9. Philippines 30 32 30 30 12

10. Myanmar 25, company 35, branch

20, empl income

30, other income

35, foreigners

0 15 5, services 3-100, goods

I. Intro: Tax rates in the ASEAN

Source: http://alasoplascpas.com/publication-update.php

Source: PWC, Paying Taxes, 2009, 2012, 2015 Reports

2009 2012 2015 Report

(% of Profit) Total tax rate

Total tax rate

Total tax rate

Profit tax Labor tax

Other taxes

Brunei 37.4 16.8 15.8 7.9 7.9 0.0

Singapore 27.9 27.1 18.4 2.2 15.1 1.1

Cambodia 22.6 22.5 21.0 19.5 0.5 1.0

Laos 33.7 33.3 25.8 16.5 5.6 3.7

Thailand 37.8 37.5 26.9 19.9 4.3 2.7

Indonesia 37.3 34.5 31.4 16.7 11.3 3.4

Malaysia 34.5 34.0 39.2 21.7 16.4 1.1

Vietnam 40.1 40.1 40.8 17.0 23.7 0.1

Philippines 50.8 46.5 42.5 20.5 8.0 14.0

Myanmar 47.7 25.4 0.0 22.3

Paying Taxes in the ASEAN: 2009, 2012, 2015 Reports

In 2009 Report, PH was the most tax-hungry government (local + national) among the ASEAN 10, wanting to confiscate half of private enterprises’ earnings.

In 2012 Report, PH government appetite to confiscate the fruits of private enterprises’ hardship declined to 46%; in 2015 Report, further declined to 42%. An improvement but still higher than socialist Vietnam’s and Laos’.

Tax wise, the PH is NOT an attractive place to do business in the ASEAN. High and multiple taxes, complicated and bureaucratic procedures.

Neighboring countries except Myanmar offer less complicated, lower taxes. Tax competition among ASEAN member countries is happening, they are cutting their tax burden, except in Malaysia.

Source: PWC, Corporate income taxes, mining royalties and other mining taxes: A summary of rates and rules in selected countries, June 2012,

Australia China India Indonesia Kazakhstan Philippines Top rate, Corp. income tax (CIT)

30% 25% 32.4% (local), 42.05% (for.)

25% 25.2% 30% nat’l, + 2% mun., 3% cities

Tax, Ore assets Life of mine

Over valid pd. mining license

25.0% 0% n/a varies

Tax, Buildings 2.5% 5% 5%, 10%, 100%

5% max 10% depends

Restrictions on use of tax losses

Yes 5 years 8 years 5 years 10 years 3/5 years

VAT charged on exports

No No No No No Yes

Ave time for VAT refund

< 1 year < 3 months < 1 year > 1 year < 6 months > 1 year

WHT Dividends 30% 10% 0% 20% 15% 15%, 30% WHT Interest 10% 10% 21% 20% 15% 20% WHT Royalties 30% 10% 10.5% 20% 15% 30% WHT Service fees

5% varies 42% 20% 20% 30%

Other payments na License fees License fees, Deadrent assess

License fees, Deadrent land, bldg tax

Deadrent Deadrent, occupation fees, mine waste & tailing fees, community tax, filing fees,…

Mining taxation, selected Asian economies

II. Quickie quiz: “The purpose of government is to expand government.” True or False? Case 1: Permits and signatures to build one base-load power plant in the Philippines. Case 2: Taxes, fees, permits to operate a big mining company in the Philippines.

1. Permits to build a base-load power plant (among the nearly 200…)

(source: presentation by Romy Bernardo, EPDP Forum, July 2015, Makati)

Result Low power supply and demand, expensive electricity.

Source: ADB, Key Indicators for Asia and the Pacific 2014.

Electric power consumption, kWh per capita

City Residential tariff

Generation cost

Grid charges

Sydney 40 12.5 19.3

Tokyo 38 28.7 6.7

Manila 35 19.5 8.2

Auckland 33 11.7 11.9

Singapore 28 21.2 4.8

Seoul 22 16.4 2.2

Bangkok 17 13.4 2.3

Hong Kong 16 12.8 3.1

Jakarta 14 10.6 1.4

Hanoi 12 7.8 2.5

Shanghai 12 7.0 2.9

Kuala Lumpur 12 7.9 1.9

Taipei 12 8.1 2.6

Beijing 10 5.8 2.3

1990 2011

Taiwan 4,159 10,486 (‘13)

S. Korea 2,373 10,162

Japan 6,486 7,848

Hong Kong 4,178 5,949

China 511 3,298

Brunei 4,355 8,507

Singapore 4,983 8,404

Malaysia 1,146 4,246

Thailand 709 2,316

Viet Nam 98 1,073

Indonesia 165 680

Philippines 361 647

Cambodia 13 (‘95) 164

Myanmar 43 110

Laos 64 103 (‘97)

Electricity prices, January 2013, in Singapore $ cents/kWh, except percent

Source: The Lantau Group (TLG), Global Benchmark Study of Residential Electricity Tariffs, May 2013.

National taxes * Corporate income tax (CIT) * Personal income tax of personnel & officers * Value added tax (VAT) * Withholding tax (WHTs) on dividends, WHT on interest, WHT on royalties, on service fees * Excise tax on minerals and imported goods * Customs duties * Capital Gains tax * Documentary stamp tax * Improperly accumulated earnings tax (IAET) * Wharfage fees * Royalty for Indigenous People (IPs) * Royalty in mineral reservation * Vehicle registration tax * Special allowance under the Mining Act * Various documents/permits required by MGB,…

Local taxes & fees * Local business tax * Real property tax (basic and SEF) * Registration fees * Occupation fees * Community tax * Mining operations tax * Environmental fees * Local wharfage fees * Regulatory/Administrative fees * Extraction fees on mineral lands * Rental fees * Mine waste and tailing fees * Mayor’s permit fee * Barangay permit * Fire department permit, sanitation permit * Provincial permit, other local taxes and fees

Mandatory Expenditures * Annual Env’l Protection & Enhancement Prog. (EPEP) * Social development and management prog. (SDMP) * Community development program * Environmental work program (EWP) * Safety and health program * Special allowance to claim owners & surface right holders

Environmental funds * Rehabilitation cash fund * Mine monitoring trust fund * Mine waste and tailings fees reserve fund * Final mine rehab. & decommissioning fund * Environmental trust fund * Mine rehabilitation fund (MRF) * Others

2. Mining taxes (and royalties, fees, contributions, mandatory expenditures…)

III. 3 Pitfalls of high taxation philosophy

• Deadweight loss arises because of monopolistic pricing incl. govt taxation, externalities, price controls.

• At higher tax, people will either produce less even if a product is publicly needed, or they underdeclare output and pay lower taxes.

• Example: if taxes (CIT + VAT + royalties + LGUs’ fees + …) are equiv. to 6% of gross mining revenues, mining output is 12 M tons.

• Raising the tax to 10% will result in that shaded area. Supposedly higher govt. revenues but lower output to society as players willing to supply only 8 M tons. And govt. will collect less. And there are fewer jobs…

(a) Deadweight loss

(b) the higher the tax rate, the lower the tax revenues/collection

Arthur Laffer (and JM Keynes) illustrated this…

As tax rates approach 100%, private enterprises will either stop working, or they work but understate output; tax assessors/collectors allow it in exch. for personal and financial gains.

(c) Non-recognition of “multiplier effect” of mineral raw materials. Contribution of mining in PH economy looks small. Just 1% of GDP, only 0.6% of total employment, mineral exports just 5% of total exports. Taxes, fees, only P20+ billion out of around P1.5 trillion tax collections or just 1% of total tax collections. Because mining’s multiplier effect is not counted. Almost all industrial (manufacturing, construction) and services (transportation, telecom, IT, etc.) activities use mining products. No mineral products means almost no industrial production, very little services sectors. (Public transpo will be horses & carabaos, not cars, buses or trains) Analogy: GVA of poultry and pork/meat is small, maybe around 2% of GDP. But without chicken and pork, there will be little or no activities in many other sectors -- restaurants, litson manok/liempo stalls, chicken cubes/fillet, other manufactured and processed food.

• Government as “owner of the minerals” will get 10% of a miner’s gross revenues or 55% of “adjusted net mining revenues” (ANMR: gross rev. less production and other deductible costs but not to exceed 10% of direct mining, milling and processing costs), whichever is higher; and 60% of any windfall profit (in case the “ANMR margin” -- ANMR divided by gross revenue -- exceeds 50%, the government gets 55% of that threshold of 50% of gross revenue plus 60% of the excess).

• Government’s share will be in lieu of CIT, royalty to indigenous communities, duties on imported specialized capital mining equipment, mayor’s business permits, other fees and charges imposed by host LGUs.

• But mining companies will still have to pay other levies: VAT, capital gains tax, stock transaction tax, documentary stamp tax, withholding tax on passive income, donor’s tax, environmental fee, real property tax, SEC fee,…

IV. Still, some sectors demand, “Higher taxes please.” MICC’s HB 5367

* DoF Fiscal Policy Division Director Elsa P. Agustin told the committee that the rates under HB 5367 would hike the government’s total take in mining to 71%, substantially higher than its current take from the existing Philippine Mining Act of 1995. * Under present law, government gets 50% share in profits of foreign miners under Financial or Technical Assistance Agreements (FTAAs) and a 2% excise tax on actual market value of output under Mineral Production Sharing Agreements (MPSAs) with local companies, plus other taxes.

* Ms. Agustin said that the state gets an AETR of 62% under FTAAs with foreign firms and 47% under MPSAs with local companies.

34.5%

40.8%

52.6%

54.7%

58.3%

58.8%

79.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Papua New Guinea

Chile

South Africa

Peru

Canada

Australia

MICC Tax Structure

Source: Halcon, Nelia, COMP’s EVP. “The MICC Proposed Fiscal Regime for Mining: An Assessment”, July 2014

Computed Average Effective Tax Rate (AETR *), Selected Countries

* AETR is the ratio of the Net Present Value (NPV) of total tax collections over the projected life of the mine to the NPV of the total project pre-tax net cash flows (discount rate of 10%).

“Economics from mining show local host of a mine (vs foreign owner) benefit the most.” – Ericsson, Mining Conf, 2015, July 16, 2015

“Some mine sites may close but in same community, ores still exist, are abundant.” - Ericsson

1. The PH has higher tax rates, more types of taxes, royalties, fees, mandatory progs compared to its neighbors in East Asia.

2. More taxes, fees and permits mean lower output, higher prices. More deadweight loss, lower revs. in the Laffer curve.

3. “The purpose of government is to expand government” is somehow true, espec in power generation and mining sectors.

4. Existing mining taxes in the PH mainly driven by envy and/or opportunism, both by local and national governments.

5. AETR of 79% as proposed in current congressional bills will further worsen the tax environment.

6. Any tax hike proposal should be compensated with streamlining and abolition of other taxes and fees elsewhere.

7. Other tositive externalities of mining include more returns to locals, extended life of mine sites.

8. People benefit from mining, directly or indirectly, even if taxes are just 10% or zero. Fear of “environmental destruction” can be addressed by more safety measures.

VI. Concluding Notes

Annex: Keep mined out pits as additional revenue source

Climate changes from warming-cooling- warming-cooling, inatural cycle. Global cooling means more rains, more flooding. Need to harvest excess water

Source: Dr. Roy Spencer, UAH

From excess, destructive water to impounded, reserved water (photos from the web)

Mined out pits need not be covered with soil and planted with trees. Mining firms can keep them as new lakes, (a) use for tourism, fishery and water sports, (b) sell water for irrigation, (c) other uses. Additional revenues to compensate for heavy taxation.

Thank you. Questions and comments, email: minimalgovernment@gmail.com Blogs: http://funwithgovernment.blogspot.com/, https://seanet2.wordpress.com/