A sleeping giant

Dindo Manhit, President of the Stratbase ADR Institute

The Philippine mining industry has been in a long-standing predicament. As a result, its development potential has been significantly constrained and mistakenly set aside. One critical challenge in the extractive sector is to find that policy balance where the mining industry would perform a vital role in national development.

At its peak, the Philippine mining industry contributed 5 percent to the gross national product. However, due to setbacks related to unstable policy directions, the industry as of now barely contributes 1 percent to the country’s gross domestic product. In particular, the current Foreign Direct Investments (FDI) of $10 million could exponentially be increased given the pending investments for the expansion of legitimate mining operations.

Investments estimated to total $23 billion, more than double the total FDI recorded last year, could pour into the country if the government is able to legislate a mining revenue-sharing scheme that is equitable to the national government and, at the same time, globally competitive to attract the right investors with the capacity and track record to responsibly harness our mineral resources.

House Bill No. 8400, which proposes an income-based taxation, is the more rational approach. As the figures are not fixed, operations will not be hampered, and mine closures will be avoided during rough periods when commodity prices are low. This approach strikes a feasible balance to finally restart the mining industry toward long-term growth.

This strategy has been successfully implemented by big mining economies, such as Chile, South Africa, Australia and Canada. These countries have robust mining fiscal regimes, with taxes based on operating margins in contrast to a fixed tax based on revenue. In fact, only the Philippines imposes a static excise tax regime on minerals plus a plethora of other taxes and royalties, making the Philippine mining sector markedly less attractive.

The proponents of the initial version of the new mining tax had proposed a static tax structure, arguing that the government does not get its fair share when market prices are high. However, when the prices do go down, the industry feels burdened by the tax, causing closures and lost jobs. Hence, the rational approach would be to design a graduated, income-based taxation structure that benefits both industry and government.

Sen. Sonny Angara, chair of the Senate committee on ways and means, has put the passage of a new mining fiscal and revenue-sharing regime high on his committee’s agenda. If successfully passed into law within this Congress, it should lift the moratorium on new mining operations imposed by the flawed Executive Order No. 79, and open the gates for billion-dollar investments in the remote mining areas where development and jobs are most needed.

Laudable is Environment Secretary Roy Cimatu’s consultative approach to resolving the complex problems of the mining industry. He has led a series of consultations with all mining stakeholders, rightly focusing on policy gaps and viable solutions while demonstrating a determination to enforce environmental regulations. A spirit of cooperation and openness to innovative solutions is key to enabling the mining sector to contribute more to the local and national economy.

Understanding how to responsibly harness our natural endowment of mineral resources, and developing the linkages of mining with other development pillars, should be the motivation that guides our policymakers. The development potential of the mining industry and its contributory impact to national development is as real as the ground we are standing on, but this trillion-dollar potential will remain just that, a potential that will never be harnessed if it remains underground.

While the policy environment on mining continues to evolve, the current momentum that HB 8400 has gathered provides an opportunity to rouse a sleeping giant. This bill seeks to rationalize and institute a sustainable fiscal regime that is workable for both government and industry.

Waking up that sleeping giant is now in the hands of the Senate.

 

 

This article was originally published in INQUIRER.net.

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