Liberalization of the Economic Restrictions under the 1987 Constitution

One of the main effects of opening up the economy is the potential influx of foreign direct investments (FDIs)



Borgjie Distura

Since all mineral resources in public and private lands within the territory and exclusive economic zone of the Philippines are owned by the State, there is a responsibility on its part to promote their rational exploration, development, utilization and conservation taking into consideration national growth vis-à-vis protection of the environment and the rights of the communities.

In this regard, as owner of mineral resources, the state regulates and manages the activities regarding the use of the said resources so much so that it issued the Mining Act of 1995 and the various rules, regulations and guidelines subsequent to it. Pursuant to Section 8 of Republic Act (R.A.) No. 7942, Department Administrative Order No. 2010-21[1] is promulgated as the revised rules and regulations.

The mining Act further provides that a royalty must be paid “upon utilization of the minerals” which shall be “agreed upon by the parties” i.e. mining companies and the ICC[2] or the small-scale miners in areas covered by the latter.[3]

I. Royalty

A royalty is defined as a payment to an owner for the use of property, especially patents, copyrighted works, franchises or natural resources.[4]

a. Rationale[5]: There are at least 3 reasons for charging resources

i. Funding / general revenue. This is directed to fund government activities which may or may not be related to the resource use. The main objective is to raise revenue in the least economically distorting manner, while taking equity issues into account (examples include income tax or goods and services tax as applied to individuals or businesses using a resource – such taxes typically do not vary depending on the resource used and are not directly related to the level of resource use)

ii. Cost recovery. This is to meet the administrative costs of planning, approving and monitoring resource use. Failure to recover costs from users encourages over-use and limits funding to support administration and enforcement.

iii. Economic. This is aimed to capture a share of economic rent for owners of a resource and address the interests of resource ‘owners’ and encouraging efficiency in resource use.

Royalty’s rationale addresses the economic reason for it (e.g. mining royalty) can be a way of collecting economic rent. Economic rent is the margin between the income realized by an owner of a factor of production (such as land, minerals, or water), and the cost of development, including financing costs and compensation for risk. Collecting economic rent is one possible rationale for imposing royalties, either for equity (fair distribution of returns from public resources) or efficiency reasons (achieving optimal resource allocation or avoiding resource dissipation). In strict theoretical terms, collecting economic rent can be seen as the sole justification for charging a royalty.

Specifically, a mining royalty is collected for the payment to the owner of the mineral resource in return for the removal of the minerals from the land. Mining royalty is payment in return for the permission that gives the mining company access to the minerals and gives the company the right to develop the resource for its own benefit. Royalty is a payment for a continued right to mine, with no actual or implied mineral ownership by the state.[6]

b. Sources.[7]

A mining royalty can be sourced depending on the basis of its imposition. It may be Unit-based royalties (UBR), Value-based royalties (VBR), Profit-based royalties (PBR) or a hybrid of the three.

i. UBR – is based on fee levied per unit volume or weight. It is more often applied to minerals that are more or less homogeneous, such as industrial minerals.

ii. VBR –is payable regardless of profitability. This is calculated as the product of a royalty rate times the value of the mineral.

iii. PBR- is based on the ability to pay i.e. some measure of profitability or adjusted income.

iv. Hybrid royalty – is a combination of the concept of profitability with value or unit based royalties.

c. Rate and Base

i. UBR

1. Units of volume

2. Units of weight

3. Graduated fee per unit that increases with the number of units produced

ii. VBR

1. Basis of mineral valuation

a. Gross sales price as billed (invoice value, billed value)

b. Gross market value

1. Refiners certificate and a daily international reference price quotation

2. Government official to determine product value

3. International market price to establish value of metal in ore exiting the mine mouth

4. International market price to establish the value of the metal in the product sold

5. International market price to establish the value of contained metal that is recoverable

6. Government to publish the market price from time to time

7. Minister to determine the market value

8. Valuation expert to set the value (diamonds and gemstones)

c. Net market value (adjusted for nonproduction costs such as transportation, insurance, and handling)

d. Net smelter return (adjusted for smelting and refining and related costs)

e. Best price available within an agreed-upon range (sets a floor)


2. Royalty rate

a. Fixed

b. Varies according to the level of profit

c. Graduated depending on level of cumulative annual production

d. Graduated depending on level of cumulative annual sales.

iii. PBR

1. Net value (market value less allowed capital and operating costs)

2. Net profit (realized sales value minus allowed capital and operating costs)

3. Net income (realized income less allowed capital and operating costs)


II. Mineral Reservation

 a. Definition and Basis. Mineral Reservations are established by the President of the Philippines. Sec. 5 of RA No. 7942 provides that when the national interest so requires, such as when there is a need to preserve strategic raw materials for industries critical to national development, or certain minerals for scientific, cultural or ecological value, the President may establish mineral reservations upon the recommendation of the Director through the Secretary. Mining operations in existing mineral reservations and such other reservations as may thereafter be established, shall be undertaken by the Department or through a contractor. All submerged lands within the contiguous zone and in the exclusive economic zone of the Philippines are hereby declared to be mineral reservations. A ten per centum (10%) share of all royalties and revenues to be derived by the government from the development and utilization of the mineral resources within mineral reservations as provided under this Act shall accrue to the MGB to be allotted for special projects and other administrative expenses related to the exploration and development of other mineral reservations. The Mineral Reservations were administered by the MGB. However, with the objective of making the mineral reservations revenue-generating, its transfer to the PMDC[8] seems to be the logical direction to take.[9]


III. Ring-fencing

a. What is ring fencing? Ring fencing refers to a situation in which each of the taxpayer’s operations is treated independently, for tax purposes, from all of the taxpayer’s other operations.[10] The most common function of ring-fencing is to protect a firm from becoming subject to liabilities and other risks associated with bankruptcy. Another function of ring-fencing is to help ensure that a firm is able to operate on a standalone basis even if its affiliated firms fail. Yet another function of ring-fencing is to protect a firm from being taken advantage of by its affiliated firms essentially preserving the business and assets of the ring-fenced firm. And still another function of ring-fencing is to limit a firm’s risky activities and investments.[11]

 b. Rationale. In a regulatory context, the term can best be understood as legally deconstructing a firm in order to more optimally reallocate and reduce risk. So utilized, ring fencing can help to protect certain publicly beneficial activities performed by private-sector firms, as well as to mitigate systemic risk and the too-big-to-fail problem inherent in large financial institutions. If not structured carefully, however, ring-fencing can inadvertently undermine efficiency and externalize costs.[12]

c. Advantages and disadvantages. If the mining tax regime is more onerous than the standard tax regime, the taxpayer will seek to have these project related activities treated as down-stream activities outside the ring fence. If they are treated as a separate activity, the taxpayer through abusive transfer pricing may shift profits to the lightly taxed downstream activities.  Ring-fencing rules matter for two main reasons:

– Absence of ring-fencing can seriously postpone government tax revenue because an investor who undertakes a series of projects will be able to deduct exploration or development expenditures from each new project against the income of projects that are already generating taxable income.

– As a mining (or petroleum) area matures, absence of ring fencing may discriminate against new investors who have no income against which to deduct exploration or development expenditures.[13]

d. Countries adopting ring fencing.[14]Some of the countries adopting ring-fencing are the following.





IV. Cash flow surcharge

a. Definition. Tax surcharge on cash flow is imposed by adjusting accounting profit by adding back depreciation and interest, and deducting any capital expenditure in full, yielding to a base of net cash flow.[15]

b. Basis. The tax base for the surcharge would be determined by adding back depreciation and interest and other financing charges to regular taxable income before the loss carryover, and deducting any capital expenditure and the regular CIT. This yields a tax base of net cash flow in the year after the regular income tax but before any financing. [16]

c. Purpose. Additional profit-based government share which serves as a minimum tax after cost recovery.[17]

d. Rationale. First, the contractor commences to pay the additional government share only after the recovery period, which is a maximum of five years or at a date which the aggregate of the net cash flows from mining operations is equal to the aggregate of pre-operating expenses, whichever comes first. The recovery period, however, may be extended with approval by the Secretary of DENR. Second, after the recovery period, the additional government share is paid if the basic government share, which consists of all direct taxes, royalties, fees, and related payments paid by the contractor, is less than 50 percent of the net mining revenue, which is equal to gross output less deductible expenses.[18]

e. Challenges.[19]

It offers investors that finance operations through debt the opportunity to in effect recognize costs twice. Loan amortization is treated as a negative cash flow. This results, in effect, in a double deduction, which will extend the recovery period. The double deduction occurs because the recovery period lasts until the pre-operating expenses, financed by the loan, are recovered (the first deduction), and loan amortization reduces net cash flow, as defined for purposes of determining the recovery period (the second deduction). Loan amortization should not be allowed as a deduction in determining net cash flow.

Many of the taxes, royalties, fees and other payments included in the basic share are also operating expenses therefore recoverable costs. For example, royalties are treated as a deductible expense in determining net mining income and it is also included in the basic government share and therefore can reduce the additional government share that would otherwise be due. Similarly, the withholding tax on interest is included in interest expense and therefore deductible in determining net mining income and also included in the basic government share.

Together with excises taxes it operates as a minimum tax that can impose very high levels of taxation relative to profits on low profit investments while failing to capture for the government a greater share of profits as profits rise due to an increase in the value of the state’s natural mineral resources




[1] Providing for a Consolidated Department of Environment and Natural Resources Administrative Order for the Implementing Rules and Regulations of Republic Act No. 7942, Otherwise Known as the “Philippine Mining Act of 1995”

 [2] Sec. 17, RA 7942

 [3] Sec. 19 (e), ibid.

 [4] Investopedia website (

 [5] Kevin Guerin, Principles for Royalties on Non-Mineral Natural Resources in New Zealand, New Zealand Treasury Policy Perspectives Paper 06/08 November 2006, pp. 6-8. Available at Accessed, February 2, 2018.

 [6] James Otto et. al, Mining Royalties: A Global Study of Their Impact on Investors, Government, and Civil Society. World Bank, Washington, D.C., 2006, p. 41. (Available at, Accessed, Feb. 2, 2018.)

 [7] Ibid., p 50-55

[8] Philippine Mining Development Corporation (PMDC) formerly the Natural Resources Mining Development Corporation, was incorporated with the Securities and Exchange Commission on July 4, 2003, pursuant to an authority contained in a Memorandum of the President of the Philippines dated April 9, 2003. The PMDC is a wholly-owned and controlled government corporation. Being a government corporation, the PMDC was attached to the Department of Environment and Natural Resources (DENR). Pursuant to DENRAdministrativeOrderNo.2003-38 and by virtue of a Memorandum of Agreement between and among the DENR, PMDC (then NRMDC) and NRDC, the PMDC was designated/appointed as the new implementing arm of the DENR in undertaking the mining and mineral processing operations in the 8,100 hectare Diwalwal Mineral Reservation located in the municipality of Monkayo, Compostela Valley Province. From DENR, the PMDC was transferred to the Office of the President on July 18, 2007, through Executive Order No. 636 signed by President Gloria Macapagal Arroyo. On December 27, 2007, the PMDC was transferred back to the DENR through Executive Order No. 689 signed by President Arroyo. The transfer was made to closely monitor and oversee the efficient and effective implementation of the country’s utilization and development of its mineral resources.

[9]Philippine Mining Development Corporation, Mineral reservations. Available at Accessed, Feb. 2, 2018.

[10] James Otto, Mineral Royalties, p. 134.

[11] Steven L. Schwarcz, Ring-Fencing, Southern California Law Review, p. 73-74. Available at, Accessed, February 2, 2018.

 [12] Ibid, p. 69.

[13] Emil M. Sunley and Thomas Baunsgaard, The Tax Treatment of the Mining Sector: An IMF Perspective, World Bank, Washington D.C. Background paper prepared for the World Bank workshop on the taxation of the mining sector, April 4-5, 2001 p. 5. Accessed, February 2, 2018.

[14] Another trend is a limitation with respect to the use of mining losses known as the “ring fencing rule”. Ghana’s 2012 Budget Statement provides that losses incurred with respect to one mining site will no longer be available for offset against profits generated from another contract area or site belonging to the same company in determining income subject to corporate income tax. This limitation is known as “ring fencing”. The Ghana government, in the 2012 Budget Statement, proposed an increase to the corporate income tax rate from 25% to 35% and an additional tax of 10% on mining companies. Ghana’s proposed tax increases are likely to take effect during 2012. Similar to Ghana, Kazakhstan has a rule that provides that subsurface users operating under more than one subsurface contract are required to maintain separate accounts and records for tax purposes with respect to each contract or other activity. The subsurface contract miner is not permitted to offset costs of one mining contract against income of another contract or activity. Since July 2010, Tanzania has a “ring fencing rule” in that losses incurred in one mine cannot be used to offset profits of another mine, notwithstanding that both mines are part of the same legal entity. (

[15] Fiscal Affairs Department, Fiscal Regimes for Extractive Industries: Design and Implementation,  International Monetary Fund, 2012. Available at Accessed, February 2, 2018, p. 20.

[16] Emil M. Sunley et al., Philippines: Reform of the Fiscal Regimes for Mining and Petroleum, International Monetary Fund, Fiscal Affairs Department, 2012. Available at, Accessed, February 2, 2018, p. 34

[17] Ibid. p. 33

[18] Ibid. p. 33

[19] Ibid. pp. 33-34.



 Borgjie B. Distura

I. Legal History Background[1]

              Utilization of natural resources, specifically mineral products, dates back to pre-Spanish colonization of the Philippines.

A letter of Sande, the third Spanish governor of the Philippines, to King Felipe II of Spain tells us that “in this island (Luzon) the natives have a quantity of gold, in the form of jewelry, with which they trade. There are many reports of gold mines. Because it is reported that the best mines are those in the province of Ylocos, I sent thither the sergeant-major from this camp with forty arquebusiers. The island of Luzon is thickly populated and well-provided with rice and gold mines. These mines have yielded much gold especially in the province of Ylocos.”[2] However, these were not located in the Ilocos, as was popularly believed, but in mountainous country further north: (Benguet) “very rough country, twenty leagues inland; the way thither is obstructed by great forests; and the country is very cold, and has great pine forests.”[3] The gold trading of Benguet Igorots with the Ilocos lowlands was reason why early Spanish conquistadores came to know of the Igorot gold mines.[4]

The islands of Mindanao, Siargao, Masbate, Zibuyan and the provinces of Camarines and Vicor, among others, are mentioned to have superior quality of gold and abundant quantity.[5] Aside from gold, there are also abundance of coal, alum, antimony, arsenic, borax, brass, bronze and copper.[6]

During this time, royal dues are collected on mine products which is 1/12th of all the income from mines, gold and silver and precious stones.[7]

As to the sharing of these resources, a royal fifths (20%) of the said mineral products are to be remitted to the King of Spain.[8]

However, the Spaniards failed to develop a Philippine mineral industry because of the lack of technology and the refusal of natives to cooperate.[9]

In 1837, a royal decree was passed known as Spanish Royal Decree of 1837 and is considered as the first mining law of the Philippines. The decree created the Inspeccion General de Minas[10] whose purpose was to administer all of the mining activities in the colony.

During the American period, the Philippine Mining Bureau was formed in 1900 by virtue of General Order No. 31[11] to process and administer mining claims and all related transactions.

The second and third laws on mining are the Philippine Bill of 1902[12] and the Commonwealth Act 137[13] respectively.

Here, the organic act reserved public lands valuable for minerals for any disposition and declared them to be free and open to exploration, occupation, and purchase by citizens of the United States or of Filipinos. The organic act was silent as to the sharing agreement. But Act 624[14] enacted on February 7, 1903 regulated the location and manner of recording of mining claims. Each affidavit accompanying the declaration of location of a mining claim shall be subject to a fee of one (1) US dollar stamp tax. The stamp tax accrued to the treasury of the province in which the mining claim is situated.

In 1904 the Internal Revenue Law (Act 1189)[15] was passed and provided for the license tax of PhP100 for each mining claim and three percent (3%) ad valorem tax based on the actual market value of the output of the mineral claim. These taxes shall inure to the Insular Treasury and be devoted wholly to the purposes of the Insular Government. This law does not provide any sharing agreement with the local government units (municipal corporations) regarding the utilization of national wealth. However, there is a mechanism akin to the present intergovernmental fiscal transfer to LGUs. Sec. 150 provides that the revenues accruing to the Insular Treasury by virtue of the provisions of this Act, ten percent (10%) shall be set apart for the benefit of the provincial governments for general provincial purposes, and fifteen percent (15%) shall be set apart for the municipal governments for general municipal purposes in accordance with law.

The third mining law is the Commonwealth Act 137 of 1936. Here, the lessee of the mineral lands shall pay to the Government of the Philippines, through the Collector of Internal Revenue, the rentals, royalties, and taxes.  As to the rentals, fifty per centum (50%) of all the rentals collected shall accrue to the province, and fifty per centum (50%), to the municipality in which the mining claim or claims is or are located. In case of chartered cities, the full amount shall accrue to the city concerned. As to taxes, fifty per centum (50%) of the real estate tax collected as herein provided shall accrue to the province, and fifty per centum (50%) of the same shall accrue to the municipality in which the mineral land leased is located. In the case of chartered cities, the full amount shall accrue to the city concerned. As to royalties, they accrue to the general fund of the Philippine Treasury, and shall be in lieu of the ad valorem tax on the market value of the output of mines.

The same tenor is found in the National Internal Revenue Code (NIRC) of 1939. Section 241 thereof provides for the payment of occupation fee before the lease of any mining claim shall be granted. Fifty per centum (50%) of occupation fees shall accrue to the province, and fifty per centum (50%) to the municipality in which the mining claims are located. In case the mining claims are located in a chartered city, the full amount shall accrue to the city concerned.  Section 242 further provides for the payment of rentals and royalties on mineral lands under lease for the privilege of exploring, developing, mining, extracting, and disposing of the minerals. The share of LGUs will be fifty per centum (50%) of all the rentals collected shall accrue to the province, and fifty per centum (50%) to the municipality in which the mining claims are located. In case the mining claims are located in a chartered city, the full amount shall accrue to that city.

Mining, particularly, gold mining, was going strong with 40 gold mines producing 40 metric tons annually before the Second World War erupted. Gold had now taken third position behind only coconut and sugar in the top commodities exported by the country. When the war broke out, the Japanese soldiers utilized prison labor to explore and mine for gold, copper, iron, manganese, and chromite. These products were then shipped back to Japan for their war effort. Because of General Yamashita’s last stand in Northern Luzon, the Americans were forced to bomb the area which resulted in major damage to the mines. The end of the war marked the beginning of the reconstruction of the damaged mines and the revitalizing of the industry. In the 1950’s, momentum picked up – gold mining resumed and exploration for copper began. New technologies such as open pit mining for large tonnage, low-grade copper deposits were introduced. Three more major mines began operations: Atlas in Cebu in 1955, Sipalay in Negros Occidental in 1957, and Philex in Baguio in 1958.[16]

The fourth mining law is the Presidential Decree 463[17] passed in 1974. This must be read in connection with the expiration of parity rights which required an amendment to the Philippine constitution allowing U.S. citizens equal rights with Filipinos in the exploitation of natural resources and operation of public utilities. The decree prohibited any province, city, municipality, barrio or municipal district to levy and collect taxes, fees, rentals, royalties or charges of any kind on mines, mining claims, mineral products, or on any operation, process or activity connected therewith. There were also no sharing provisions to the LGUs in the said decree. Ten years after this decree, PD 1899 was enacted establishing small-scale mining as a new dimension in mineral development and in response to the inflation, volatile commodity prices, multiple increases of oil and fuel prices, stringent environmental control measures and high cost of capital proved to be most disastrous for Philippine large scale mines.

In 1987, the constitution codified in the fundamental law, for the first time, the equitable share of LGUs in the utilization of national wealth when it provides that local governments shall be entitled to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.[18] In 1991, the Local Government Code (LGC) was enacted spelling out the details on sharing agreement between the national government and the LGUs.[19]

The fifth and governing mining law at present is the Republic Act No. 7942 known as the Mining Act of 1995. Its constitutionality was challenged but the Supreme Court upheld in favor of its constitutionality.[20] The framework on sharing agreement of this piece of legislation, including the 1987 Constitution, LGC of 1991 and pertinent laws, issuances and regulations is presented below.

In 2012, Executive Order (EO) 79 was issued providing for a moratorium on the approval of new mineral agreements. The EO provides that “No new mineral agreements shall be entered into until a legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect.” The DENR may continue to grant and issue Exploration Permits under existing laws, rules, and guidelines. The grantees of such permits shall have the rights under the said laws, rules, and guidelines over the approved exploration area and shall be given the right of first option to develop and utilize the minerals in their respective exploration area upon the approval of the declaration of mining project feasibility and the effectivity of the said legislation. The EO added three more areas as No-go Areas:

  1. Prime agricultural lands, in addition to lands covered by the Comprehensive Agrarian Reform Law of 1988, as amended, including plantations and areas devoted to valuable crops, and strategic agriculture and fisheries development zones and fish refuge and sanctuaries, as determined by the Department of Agriculture.
  2. Tourism development areas, as identified in the national (Department of Tourism) and local tourism development plans.
  3. Other critical areas, island ecosystems, and impact areas of mining, as determined by the Department of Environment and Natural Resources.

The following AREAS are also closed to mining:

Areas expressly enumerated under Section 19 of RA No. 7942. Mineral agreement (MA) or financial or technical assistance agreement (FTAA) applications shall not be allowed:

In military and other government reservations, except upon prior written clearance by the government agency concerned;

Near or under public or private buildings, cemeteries, archeological and historic sites, bridges, highways, waterways, railroads, reservoirs, dams or other infrastructure projects, public or private works including plantations or valuable crops, except upon written consent of the government agency or private entity concerned;

In areas covered by valid and existing mining rights;

In areas expressly prohibited by law;

In areas covered by small-scale miners as defined by law unless with prior consent of the small-scale miners, in which case a royalty payment upon the utilization of minerals shall be agreed upon by the parties, said royalty forming a trust fund for the socioeconomic development of the community concerned; and

Old growth or virgin forests, proclaimed watershed forest reserves, wilderness areas, mangrove forests, mossy forests, national parks provincial/municipal forests, parks, greenbelts, game refuge and bird sanctuaries as defined by law and in areas expressly prohibited under the National Integrated Protected Areas System (NIPAS) under Republic Act No. 7586, Department Administrative Order No. 25, series of 1992 and other laws.

 Limitations to Small-Scale Mining

  1. It is limited to areas declared as “Minahang Bayan.”
  2. Small-scale mining shall not be applicable for metallic minerals except gold, silver, and chromite, as provided for in RA No. 7076 (People’s Small Mining Act of 1991).
  3. The use of mercury in small-scale mining shall be strictly prohibited.


II. Legal Framework, Allocation and Distribution

            Under the Constitution, the State owns all mineral resources.[21]  Likewise, its exploration, development and utilization are under the full control and supervision of the State.[22]

The Mining act of 1995 governing the mining regime of large scale mining provides three modes of mineral agreements which grant the contractors the exclusive right to conduct mining operations and to extract all minerals resources found in the contract area. It also provides for a financial or technical agreement to undertake large-scale exploration, development, and utilization of mineral resources. All these are conditioned upon strict adherence to the principle of sustainable development which mandates that the needs of the present should be met without compromising the ability of the future generations to meet their own needs, with the view of improving the quality of life, both now and in the future.[23]

Presidential Decree (PD) No. 1899[24] and RA No. 7076[25], on the other hand, created and established the development of small-scale mining in the country.

It is in this line that the government imposes certain taxes and fees to protect the environment and the affected communities from the adverse effects of the mining industry; and to generate wealth to finance government projects and activities for the welfare of the people.

The 1987 Constitution, for the first time in the constitutional history of the Philippines, entitles local governments units to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.

Aside from the Constitutional basis of the share in national wealth by the LGUs, the following are the legal foundations and operational guidelines of the said share.

  1. Section 287 of NIRC of 1997 as amended
  2. Section 290 of RA No. 7160 (LGC of 1991)
  3. DBM-DOF-DENR-DOE Joint Circular No. 2006-1, “Revised Guidelines and Procedures on the Release of the Share of Local Government Units in the Proceeds from the Development and Utilization of National Wealth.” (February 13, 2006)
  4. DOF-DBM-DILG-DENR-DENR Joint Circular No. 2009-1, “Updated Guidelines and Procedures on the Release of the Share of Local Government Units from the Collections Derived by the National Government from Mining Taxes.” (March 31, 2009).


III. Allocation

              The forty percent (40%) of the gross collection derived by the national government from the preceding fiscal year from mining taxes, royalties, forestry and fishery charges, and such other taxes, fees, or charges, including related surcharges, interests, or fines, and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction.[26]

LGUs’ share is based on the preceding fiscal year, from the proceeds derived by any government agency or government-owned or controlled corporation (GOCC) engaged in the utilization and development of the national wealth, based on the following formula, whichever will produce a higher share for the LGU:

One percent (1%) of the gross sales or receipts of the preceding calendar year; or 40% of the excise taxes on mineral products, royalties, and such other taxes, fees or charges, including related surcharges, interests or fines the GOCC would have paid if it were not otherwise exempt.[27]

Section 24 of the LGC provides that shares from the national wealth of LGUs such as the excise taxes and royalties are to be appropriated by their respective sanggunian to finance local development and livelihood projects. The share in national wealth arising from excise taxes on mining activities and royalties on mineral reservations forms part of an LGUs’ general fund, making it difficult to track how LGUs are spending these revenues. The LGC requires collections from national wealth be spent for development of local communities. In the case of energy resources, 80% of the LGU’s share must be applied solely to lower electricity cost in the LGU where the source of energy is located.

However, LGUs continue to appear to deviate from the appropriation rules. Most of the LGUs put all their revenues, including local payments and national government agencies’ transfers to the general fund that are then appropriated for all types of LGU expense and projects, as LGUs remain unaware of the disaggregation of the share in national wealth that they received. For certain LGUs, share in national wealth gets credited to their respective bank accounts without formal notice as to the source (excise tax or royalties from mineral reservation) or the year when the taxes were collected.

To address this issue, DOF and DBM have released Joint Circular No. 2016-1 in order to streamline the process of releasing funds authorized for LGUs, including share in national wealth.[28]


IV. Distribution

               The share shall be distributed as follows:[29]

Where the natural resources are located in the province:

  • 20% – Provinces;
  • 45% – Component city/municipality; and
  • 35% – Barangay

Where the natural resources are located in 2 or more provinces, or in 2 or more component cities or municipalities or in 2 or more barangays, their respective shares shall be computed on the basis of:

  • 70% – Population
  • 30% – Land Area


V. Mode of Distribution[30]

  1. The projected shares of the LGUs out of the 40% of the proceeds of the national wealth from the preceding year shall be submitted to DBM by the concerned revenue collecting agencies of the national government not later than the 15th of March of the ensuing year. While the 1st quarter shall be based on actual collections, the remaining 3 quarters shall be based on projected historical collection.
  2. During budget execution, DBM shall release the allotment upon submission by the collecting agency of the following: (i) Certification showing corresponding share of each province, city, municipality and barangay where the national wealth is being developed and/or utilized, and (ii) Certificate of Actual Remittance for the preceding year from BTr.
  3. Request for the release of the shares of LGUs as certified by the collecting agencies, namely, BIR, DENR, MGB shall be forwarded to the DBM Central Office which in turn shall refer the same to its Regional Offices together with the supporting documents for authentication and verification.
  4. The request pertaining to release of shares of LGUs in the proceeds of the collection from energy resources production submitted by DOE shall be submitted directly to the DBM Central Office for evaluation.
  5. Shares of LGUs from the proceeds derived by National Government Agencies (NGAs) or GOCCs engaged in the utilization and development of national wealth are directly remitted by such agency or corporation to the provincial, city, municipal or barangay treasurer within 5 days after the end of each quarter.
  6. LGUs which are entitled to receive their shares from the proceeds in the utilization and development of national wealth are enjoined to assist the collecting agencies to ensure that the March 15 deadline set forth under the law is met.
  7. All collecting agencies shall deposit collections to the account of the BTr maintained with their depository banks on the same day or the next banking day as the case may be.

In the case of share from mining tax, the following guidelines and procedure shall be applied:

  1. LGUs shall secure from the mining companies the following documents: certification of mining tax payments from the Collection Officer (CO) if tax payments are made thru the CO or certification of tax payment from the Computer and Information System Service (CISS) if paid thru banks; Revenue Official Receipts (RORs); Payment Orders (POs); and Confirmation Receipts (CRs) or Authority to Accept Payment (ATAP). The same documents shall then be submitted to the Revenue Accounting Division (RAD) of the BIR for the computation of the shares of the LGUs from the tax.
  2. The BIR shall determine the schedule of shares of the LGUs from the tax. It shall verify the correct mining taxes paid and collected during the immediately preceding year based on the estimated and actual volume and values of the mineral products submitted by the MGB. The BLGS, on the other hand, shall submit to the BIR the validated list of actual extraction sites of all non-metallic mineral products with a summary of LGUs where such production/extraction originated.
  3. In case where the mining sites/operations are located in 2 or more provinces, or in 2 or more component cities, or in 2 or more barangays, the updated master list of land area officially issued by the LMB and the updated census of population officially issued by the National Statistics Office (NSO) shall be adopted as basis in computing the allocated shares of the concerned LGUs.
  4. The BIR shall submit to the DBM, in coordination with the DOF, for budget preparation purposes, the estimated or projected mining tax to be collected for the current year and the corresponding 40% share of the LGUs on or before March 15 of every year. The said estimated or projected mining tax collection shall be equivalent to the amount of excise tax from the mining industry allocated from the total revenue target of the BIR.
  5. The BIR shall prepare and approve a Joint Certification with the BTr, for budget execution purposes, the actual collections from mining taxes during each calendar quarter and the schedule of the corresponding shares of the beneficiary LGUs.
  6. The BTr shall validate and approve the Joint Certification transmitted by the BTr within 30 days immediately after receipt thereof. It shall transmit to the DBM the duly validated and approved Joint Certification within 45 days immediately after the actual receipt of said certification and schedule of LGU shares from the BIR.
  7. The Regional Operations and Coordination Service (ROCS) of the DBM shall program, for budget preparation purposes, the amount representing the LGUs’ share from mining taxes in the budget of the following year, based on the estimated or projected mining taxes to be collected for the current year and the corresponding 40% share of the LGUs submitted by the BIR.
  8. The ROCS shall release the shares of the LGUs from mining taxes by issuing the allotment and the corresponding cash allocation based on the Joint Certification issued by the BIR and BTr of mining tax collections during the 3 quarters of the calendar year in February of the ensuing year. Releases based on 4th quarter shall be released in May of the ensuing year. The Funding Check shall be deposited to the Government Servicing Banks (GSBs) for direct credit to the amount of the beneficiary LGUs.


VI. Large-scale Mining

             Large scale mining refers to exploration, development and utilization of minerals involving large areas.[31]

           a. Sharing Agreement for Large-Scale Mining

              Under the Mining Act of 1995, governments’ shares depend on the agreement entered by the Government and the mining contractor under different MAs or FTAA, to wit:

  1. Mineral Production Sharing Agreement (MPSA) – The Government share in an MPSA is the 2% excise tax. However, mining companies under this agreement are also liable to all applicable taxes under the National Internal Revenue Code (NIRC) of 1997, as amended; fees and charges from various government agencies; and local taxes and fees imposed by LGUs.  In addition, a five percent (5%) royalty tax is imposed if the mine is located within a mineral reservation.
  2. Co-Production Agreement (CPA) and Joint Venture Agreement (JVA) – The share of the Government in CPA and JVA shall be negotiated by the Government and the contractor taking into consideration the following: (i) capital investment of the project; (ii) risks involved; (iii) contribution of the project to the economy; and (iv) other factors that will provide for a fair and equitable sharing between the Government and contractor. The Government shall also be entitled to compensation for its other contributions which shall be agreed upon by the parties, and shall consist, among other things, the contractor’s income tax, excise tax, special allowance, withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholders in case of a foreign national and all such other taxes, duties and fees as provided for under existing laws.
  3. Financial or Technical Assistance Agreement (FTAA) – The total Government share consists of basic and additional Government share. The basic Government share includes all direct taxes, royalties, fees and related payments required by existing laws, rules, and regulations to be paid by the Contractor.  It shall be the minimum share that the Government shall receive during any calendar year.


VII. Small-scale Mining

             Small scale mining refers to refers to mining activities which rely heavily on manual labor using simple implements and methods and do not use explosives or heavy mining equipment.[32]

               In the case of small-scale mining, PD No. 1899 exempts small scale mining permittee/licensee from payment of all taxes except income tax.  The said law was amended by RA No. 7076, which requires small-scale mining contractor to pay all taxes, royalties or government production share.[33]

a. Sharing Agreement

            Section 19 of the Small-Scale Act provides that the sharing between the NG and the LGU shall be subject to the sharing provided in the Local Government Code.


VIII. Overview of payments to NG from mining

              Specifically, the basic Government share is composed of the collection from the following taxes:  income tax, customs duties and fees on imported capital equipment, VAT on imported goods and services, withholding tax on interest payments on foreign loans, withholding tax on dividends to foreign stockholders, documentary stamp taxes, capital gains tax, excise tax on minerals, royalties for mineral reservations and to Indigenous Peoples (IPs),

Additionally, government share[34] shall be collected if the basic Government share is less than 50% of the net mining revenue, which is computed as the difference between the 50% of the net mining revenue and the basic Government share during the calendar year.  Net mining revenue equals gross output[35] less deductible cash operating expenses.

It is worthy to note that there exists a recovery mechanism by allowing Contractors to recover its pre-operating expenses. The Contractor may recover the expenses incurred during the pre-operating period which is a maximum of five (5) years or at a date when the aggregate of the Net Cash Flows from the mining operations is equal to the aggregate of its pre-operating expenses, reckoned from the date of commencement of commercial production, whichever comes first.   It is a consideration given to Contractors for reason of high cost and long-term nature of an FTAA mining operation. However, in case of projects incurring very large investments with high production rate and extensive mine life, as determined by the MGB, the recovery period may be extended upon negotiation with the FTAA Negotiating Panel and subject to approval of the Secretary of the DENR.


IX. Overview of payments to LGU from mining

            Mining companies are required to pay local business tax (LBT), real property tax (RPT), special education fund (SEF), registration fees, occupation fees, community tax and other local taxes.


Type Rate Base
LBT Rate varies among local governments
RPT Not exceeding 2% Assessed value i.e., market value of the property multiplied by the assessment level which varies among local governments


Mobile equipment is not subject to tax

SEF 1% Assessed value of the property
Registration fees Rate depends on the activity to be registered
Occupation fees P50.00 per hectare per year for areas not covered by mineral reservations
P100.00 per hectare per year for areas covered by mineral reservation
Community tax Maximum of P5,000 for individual and PhP10,000 for establishment per year


In summary, the following are the taxes and fees being collected from the mining industry, viz.:


Table 1. Summary of Payments to Different Stakeholders

Direct payments to the NG

Payment Rates and Base
Corporate income tax 30% of taxable income[36]
Excise tax on minerals 2% of the gross output from metallic and non-metallic minerals produced
PhP10.00 per metric for coal and coke
Customs duties and fees 1% – 7% (MFN); 0% (ATIGA) for chemicals
1% – 10% (MFN); 0% (ATIGA) for explosives
1% – 15% (MFN); 0% (ATIGA) for mechanical and electrical equipment
1% – 20% (MFN); 0% (ATIGA) for vehicles, aircraft and vessels
VAT on imported equipment, goods and services 12%
Royalties on minerals from mineral reservations, if applicable 5% of actual market value of minerals produced
DST Rate depends on the type of transaction
CGT on traded stocks 5% – 10% of net capital gains
Administrative fees e.g. wharfage and port fees, licensing fees for radio, firearms and driving of motor vehicles and professional fees

Direct Payments to LGUs

Local business tax Rate varies among local governments
RPT Not exceeding 2% of the assessed value i.e., market value of the property multiplied by the assessment level which varies among local governments
Mobile equipment are not subject to tax
Special education levy 1% of the assessed value of the property
Registration fees Rate depends on the activity to be registered
Occupation fees P50.00 per hectare per year for areas not covered by mineral reservations
P100.00 per hectare per year for areas covered by mineral reservation
Community tax Maximum of P5,000 for individual and PhP10,000 for establishment per year.
Other local taxes Type of taxes depend on local government concerned at  maximum of 2% based on gross sales/receipts

Direct Payments to Other Filipinos

Royalty to landowners/claim owners Depends on the negotiation between landowner/claim owner and mining contractor
Royalty to indigenous peoples, if within ancestral lands Minimum of 1% of the gross output from minerals

Indirect Payments

Fuel tax[37] P0.00 per liter of fuel[38]
Tariff of imported fuel P0.36 per liter of fuel
Withholding tax on payroll Varied rates depending on amount
Withholding tax on royalties  to claim owners 20% of royalties
Withholding tax on interest income from banks 20% of the interest income
Withholding tax on interest payment on foreign loans 20% of interest payment
Withholding tax on foreign stockholders dividends 15% of the dividend
Withholding tax on profit remittance to principal companies 15% of the amount of remittance
Withholding tax on royalty   for transfer of technology 15% of the royalty

Hence, all mining contractors, regardless of size, are liable to all applicable national taxes imposed under the NIRC of 1997, as amended, as well as to local taxes and fees imposed by LGUs and the prescribed fees and charges imposed by various national government agencies such as the Mines and Geosciences Bureau (MGB).

Table 2. Sources of National Wealth and Related Collecting Government

Type of national wealth

Collecting government agency Frequency of release to LGUs

Royalty on mineral reservations



Energy resources production


Mining taxes BIR


Local Taxes LGU

Depends on the tax imposed







[1] This historical presentation of sharing agreements in mining (national wealth) is patterned after the chronological issuances of the five mining laws starting from the Spanish Royal Decree of 1837 up to the Mining Act of 1995. It is worthy to note that it is valuable to read symmetrically the history of mining vis-à-vis the constitutional history of the Philippines as expounded by Justice Carpio-Morales in her ponencia in La Bugal-blaan Tribal Association, Inc. vs. Ramos, G.R. No. G.R. No. 127882. January 27, 2004. Available at Accessed, February 8, 2018.

[2] Blair Emma Helen and Robertson James Alexander, editors, The Philippine Islands, 1493–1898. Cleveland: The Arthur H. Clark Company, 1907, Vol. IV, p. 88 and Vol. V. p. 81.

[3] Olivia M. Haban, Gold Mining in Benguet to 1898. Philippine Studies vol. 48, no. 4, 2000, p. 468.

[4] Ibid. p. 461.

[5] Ibid. Vol. IV, p. 284. Along the coast, two day’s journey eastward, is a settlement called Bilan. It is a river with gold mines. Vol. V, p. 61. There are mines all over the island (of Mindanao). Vol. V, p. 51. There are numerous islets near this island (Siargao), which contain many gold-placers… p. 53. Island of Masbate…It has gold mines from which much gold was dug. Vol. V, p. 75. In this island (Zibuyan) is to be found very good gold mines. Vol. V, p.91. The inhabitants of the Vicor River district pay their tribute in gold and rice, for they possess these articles in great abundance – for in this province are the excellent mines of Paracale.

 [6] Ibid. Vol. II, p. 85. In this land (Filipinas) there is copper in abundance, from which artillery can be made.

 [7] Ibid. Vol. II, p. 158.

 [8] Ibid. Vol. II, p. 156. Even those gold and jewels looted by Spanish soldiers from graves and burial places should have a royal fifth. See p. 172.

 [9] Jasmin D. Quintans, Mining industry in the Philippines. Manila Times, September 4, 2017. Available at Accessed, February 7, 2018.

 [10] It is the precursor of the present Mines and Geosciences Bureau (MGB).

 [11] Mines and Geosciences Bureau, Brief History. Available at, Accessed, February 7, 2018, 2018.

 [12] An Act Temporarily to Provide for the Administration of the Affairs of Civil Government in the Philippine Islands, and for Other Purposes.

[13] An Act to Provide for the Conservation, Disposition, and Development of Mineral Lands and Minerals

[14] An Act Prescribing Regulations Governing the Location and Manner of Recording Mining Claims, and the Amount of Work Necessary to Hold Possession of a Mining Claim, Under the Provision of the act of Congress Approved July First, Nineteen Hundred And Two, Entitled “An Act Temporarily to Provide for the Administration of the Affairs of Civil Government in the Philippine Islands, and for Other Purposes (

[15] The Internal Revenue Law of 1904

[16] Steve King, Mining in the Philippines. Linkedin. February 2, 2018. Available at, Accessed, February 7, 2018.

[17] Mineral Resources Development Decree of 1974

[18] 1987 CONST., Article X, Section 7.

[19] Chapter 2, Title 3 of Book II of the Local Government Code of 1991.

[20] The La Bugal-B’laan Tribal Association filed a petition before the Supreme Court questioning the constitutionality of the mining act by allowing foreign nationals in the utilization of natural resources. It was decided in January 2004 holding its unconstitutionality but in December of the same year the court upheld the constitutionality of the mining act.

[21] It flows from the concept of jura regalia embraced by the Philippines. For a discussion of this concept and its origin, see the separate opinion of Justice Puno in the case Cruz vs. Sec. of DENR, G.R. No. 135385. December 6, 2000. Available at, Accessed, February 8, 2018.

[22] 1987 CONSTI., Art. XII, Sec. 2

[23] RA 7942

[24] Entitled, “Establishing Small-Scale Mining as a New Dimension in Mineral Development,” effective January 23, 1984.

[25] Entitled, “An Act Creating a People’s Small-Scale Mining Program and For Other Purposes,” approved June 27, 1991 and effective July 18, 1991.

[26] Sec. 290, LGC of 1991 and Sec. 287 (A) of NIRC of 1997 as amended.

 [27] Sec. 291, LCG of 1991 and Sec. 287 (B) of NIRC of 1997 as amended

[28] PH-EITI, Extracting Value in Transparency: The Third PH-EITI (FY 2014), PwC, p. 85.

 [29] Sec. 292, LCG of 1991 and Sec. 287 (C) of NIRC of 1997 as amended

 [30] See, DBM-DOF-DENR-DOE Joint Circular No. 2006-1 and DOF-DBM-DILG-DENR-DENR Joint Circular No. 2009-1,

[31] The maximum area that a qualified person may hold at any time:

  1. Under Mineral Agreements
    1. Onshore, in any one province
  2. For individuals, ten (10) blocks; and
  3. For partnerships, cooperatives, associations, or corporations, one hundred (100) blocks.
    1. Onshore, in the entire Philippines
  4. For individuals, twenty (20) blocks; and
  5. For partnerships, cooperatives, associations, or corporations, two hundred (200) blocks.
    1. Offshore, in the entire Philippines
  6. For individuals, fifty (50) blocks;
  7. For partnerships, cooperatives, associations, or corporations, five hundred (500) blocks; and
  • For the exclusive economic zone, a larger area to be determined by the Secretary.
  1. FTAA
    1. 1,000 meridional blocks onshore;
    2. 4,000 meridional blocks offshore; or
    3. Combinations of (a) and (b) provided that it shall not exceed the maximum limits for onshore and offshore areas.

[32] RA 7076, Section 3, (b)

[33] In this regard, the Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) 7-2008 to simplify the collection of excise tax on the sale of gold by small-scale miners to the Bangko Sentral ng Pilipinas (BSP) which is constituted as a withholding agent for excise tax.  The two-percent (2%) excise tax as prescribed by Section 151(A)(3)(b) of  the Tax Code, as amended, shall be paid to and withheld by the BSP on every purchase of gold from the small-scale miners as defined by RA 7076 based on the actual selling price  of gold.

The BSP, upon payment to the small-scale miner of its purchase of gold, shall deduct from such payment the corresponding excise tax due thereon.  Such deduction shall be in addition to the 5% creditable withholding tax (CWT) based on gross payments made as required to be withheld on income payments or purchases of minerals and mineral products under RR No. 6-2012.  According to the BIR, “[t]he BSP … holds a preeminent position of having full information relative to the amount of sales generated by these small-scale miners,” thus, would simplify and shore up tax collection.  The BSP would be required to remit to the BIR the withheld excise taxes on a monthly basis.”

[34] For purposes of computing the Government share, the basic Government share and the additional Government share, if applicable, are added.  During the recovery period, the Government share is composed only of the excise tax on minerals, royalties from mineral reservations and to IPs or ICCs, if applicable, and local taxes, fees and related imposts due to local government units.  The BIR clarified, however, that the FTAA contractors are still liable to pay the taxes due under the NIRC, as amended, and under existing rules and regulations during and after their recovery period, which is in the nature of compliance with tax obligations and not in the nature of settling the Government share under the FTAA. (BIR Revenue Memorandum Circular (RMC) No. 17-2013, Clarifying Taxes Due from Financial or Technical Assistance Agreement (FTAA) Contractors During “Recovery Periods”.  February 15, 2013.)

[35]    Gross output refers to actual market value of minerals or mineral products from each mine or mineral land operated as a separate entity, without any deduction for mining, processing, refining, transporting, handling, marketing or any other expenses: Provided, that if the minerals or mineral products are sold or consigned abroad by the Contractor under C.I.F, terms, the actual cost of ocean freight and insurance shall be deducted:  Provided, further, That in the case of mineral concentrates which are not traded in commodity exchanges in the Philippines  or abroad, such as copper concentrates, the actual market value shall be the world price quotations of the refined mineral products content thereof prevailing in the said commodity exchanges, after deducting the smelting, refining, treatment, insurance, transportation and other charges incurred in the process of converting mineral concentrates into refined metal traded in those commodity exchanges.  The actual market value of gold and silver bullions or dore shall be determined in the same manner as mineral concentrates.

[36] Effective January 1, 2009 under RA No. 9337.

[37]  Excise tax on diesel fuel oil, and other similar oils having more or less than the same generating power, per liter of volume capacity

[38]  Prior to RA No. 9337, rate was at P1.63 per liter of fuel.


In every change intervention, there will be spasms and Atty. Cabrera in his column entitled How to make the TRAIN unstoppable wrote that “there is no such thing as zero damage in a tax reform.” Peter Wallace in his article entitled Everyone can join the TRAIN (1), opined that “The rich might suffer a bit, but they can afford it and they wouldn’t get much sympathy if they complained. Members of the middle class will have little to complain about. Their higher take-home pay will more than cover whatever cost increases there will be.”  Cabrera also pointed out that “the individual pain from additional cost of living will need to pale in comparison to the common benefits. If the tax reform performs, it will be game changing for the country, and even life changing for the public.”

But it is the poor, the unemployed, where the difficulty may lie despite the safeguards under the TRAIN according to Wallace in the same article.

How will the safeguards for the poor as provided under the law be implemented?

Let’s take the example of the tax on sweetened beverage (SB). There are two valid contentions of the debate. Joshua Uyheng asks the question in his article in the Yellow Pad column, (Business World, Feb. 11, 2018) “Is sugar good or bad?”

The answer is less surprising than one might think.

On one hand, the current SB tax provision already exempts the beverages most consumed by the poor, including all milk and coffee products. But more to the point: instead of simply reducing the consumption of harmful products, the government can use the funds from the SB tax to make healthier alternatives like vegetables and potable water more accessible and affordable, especially for the poor.

Since nutrition is already part of the blanket earmarks for incremental funds from TRAIN, the best course of action seems to be for the government to walk their talk in the coming months. To change deeply ingrained behaviors on a societal level takes not only the elimination of some options, but also the improvement of others, of better options.

There are enough safeguards in the TRAIN and in other laws for the marginalized. But this is not in somebody’s hands, but in the present administration’s hands and in our vigilance.

Now this must be what we must be vigilant about. If the safeguards are not implemented well, “slap” the concerned official. Make a “scene”. It must be a collective effort to be vigilant especially for the marginalized since the safeguards provided under various laws, foremost of which is the TRAIN, become a right corollary to the fundamental right to live.