25 October 2018 Philippines releases draft fiscal regime for mining industry On 8 October 2018, a consolidated bill (the Bill) was filed with the Philippine House of Representatives to rationalize and institute a single fiscal regime applicable to all entities with mineral agreements in the Philippines. The Bill’s highlights include the following: - Royalty tax imposed on mining operations with varying rates for small and large-scale mining operations located within and outside mining reservations1
- Margin-based windfall profits tax
- Limitation on interest expense deduction
- Non-consolidation of income and expenses of mining projects by mining contractor
This Alert summarizes the key provisions of the bill. Detailed discussion Royalty tax- Large-scale metallic and non-metallic mining operations outside of mineral reservations: a margin-based royalty on income from mining operations at the following rates:
Margin | Royalty | 1% – 10% | 1% | Above 10% – 20% | 1.5% | Above 20% – 30% | 2% | Above 30% – 40% | 2.5% | Above 40% – 50% | 3% | Above 50% – 60% | 3.5% | Above 60% – 70% | 4% | Above 70% | 5% |
Large-scale metallic and non-metallic mining operations within mineral reservations: royalty tax of 3% of the gross output of the minerals or mineral products extracted or produced by the mining operations, exclusive of all other taxesSmall-scale mining and non-metallic mining operations within or outside mining operations: royalty tax of 0.1% of the gross output Windfall profits tax In addition to other taxes, a margin-based windfall profits tax on income from mining operations before corporate tax will be imposed at the following rates: Margin | Rate | More than 35% – 40% | 1% | More than 40% – 45% | 2% | More than 45% – 50% | 3% | More than 50% – 55% | 4% | More than 55% – 60% | 5% | More than 60% – 65% | 6% | More than 65% – 70% | 7% | More than 70% – 75% | 8% | More than 75% – 80% | 9% | More than 80% | 10% |
Limitation on interest expense deductionIf the mining contractor exceeds the debt-to-equity ratio of 3 to 1 at any time during the taxable year, the interest expense paid during the taxable year will be disallowed as a deduction on that part of the debt that exceeds the 3 to 1 ratio for the period during which the ratio was exceeded. Non-consolidation of income and expenses by mining contractorEach mining operation subject to a Mineral Agreement or a Financial or Technical Assistance Agreement (FTAA) will be treated as a separate taxable entity and the mineral contractor will be treated as a separate taxpayer for every Mineral Agreement or FTAA it holds or a party to. 1. Mineral resources are owned by the State; accordingly, mining operators are required to pay royalties to the Philippine Government. For additional information with respect to this Alert, please contact the following: - Luis Jose P. Ferrer | luis.jose.p.ferrer@ph.ey.com
- Fidela T. Isip-Reyes | fidela.t.isip-reyes@ph.ey.com
- Betheena Dizon | betheena.c.dizon1@ey.com
- Chris Finnerty | chris.finnerty1@ey.com
- Kaz Parsch | kazuyo.parsch@ey.com
- Bee-Khun Yap | bee-khun.yap@ey.com
Document ID: 2018-6245 | 
