Summary of “Revenue Sharing In Mining: Insights from the Philippines” by Ronald U. Mendoza & Tristan A. Canare


This study was presented at the 2012 Philippine Economic Society Annual Meeting – Session on “How Should the Philippines Reform Its Mining Tax Law?” The paper starts in identifying that almost all mining operations in developing countries are DE FACTO PUBLIC- PRIVATE PARTNERSHIP and one of its critical component is REVENUE SHARING which must also be the starting point of COST-BENEFIT ANALYSIS for revenue sharing in particular and for policy reform in mining in general.

The study analyzed PUBLIC and PRIVATE DATA from 2007 to 2010. The study’s objective is TO  ILLUSTRATE THE MAIN DIFFERENCES BETWEEN THE MACRO (Industry) and MICRO DATA (Individual Mining Company).

INDUSTRY LEVEL analysis provided that the available data is an aggregation of the all mining activities hence HETEROGENEITY is a factor which is lacking in the INDUSTRY LEVEL. The analysis resulted to a finding (1st finding) that the INDUSTRY LEVEL ANALYSIS IS INADEQUATE IN DETERMINING FAIRNESS AND IN DESIGNING REVENUE SHARING POLICIES.

FIRM LEVEL analysis on the other hand, resulted to a finding (2nd Finding) that THERE ARE TAX DISCREPANCIES IN TAX PAYMENTS ACROSS FIRMS. The study took two large mining firms and studied their financial statements. They are the Philex Mining and Nickel Asia. According to the study, the large metallic mines’ payment to the government is much higher (19%) than the industry average (10%). This implies, according to the authors that TAX PAYMENTS ARE WIDELY DIFFERENT ACROSS FIRMS. There is therefore HETEROGENEITY in the MICRO DATA which is the MAIN DIFFERENCE between the MACRO and MICRO DATA.

The REASONS for the HETEROGENEITY according to the authors are the following:

  2. Mines are at varying STAGES in their life cycle
  3. Mining companies DIFFER IN ECONOMIC SCOPE
  4. Tax evasion especially in small scale mining sector
  5. Financial conditions of firms

In order for the findings to be addressed, the authors proposed and suggested that for an ADEQUATE DETERMINATION OF FAIRNESS IN REVENUE SHARING AND FOR DESIGNING A RATIONAL MIINING FISCAL POLICY there is a NEED TO CONDUCT A COMPLETE SIMULATION OF TAX REVENUES ACROSS DIFFERENT TYPES OF MINES. This will provide for a gauge in terms of our policies in revenue sharing and in terms of competitiveness with international standards.

FOREIGN FIRMS. The study also considered 5 foreign mining firms and subjected their financial statements into a FIRM-LEVEL analysis. The foreign firms studied are the following:

  1. Barrick Gold Corp (the world’s largest gold producer)
  2. Rio Tinto Group
  3. Eurasian Natural Resources Corp
  4. Norilsk Nickel
  5. PT Vale Indonesia Tbk

These 5 foreign firms are good comparators because their tax figures level out differences in revenue sharing arising from differences in minerals extracted, stages in mine life cycle, and revenue sharing in the host countries.

The results of the analysis of the 5 foreign firms are comparable to the two large local mining firms in terms of:

  1. The average TAXES AS SHARE OF COMPANY REVENUE. The results are not very far. Local firms have an average of 19.4% compared to a 15.7% average of the foreign firms.
  2. INCOME TAX is the largest component of payments to government in both local and foreign firms. In fact the average payments are very close at 67.8% for local and 68.7% for foreign firms.

CONCLUSION. The study concluded that THERE ARE SIGNS THAT MINING INDUSTRY IN THE PHILIPPINES AS A WHOLE MAY NOT BE CONTRIBUTING ENOUGH TO GOVERNMENT REVENUE. It is suggested that tax incentives to large scale mining must be revisited if they are still needed and to what extent small scale mines can contribute their fair share in tax payments.

Further, it laid down a caveat that CARE MUST BE OBSERVED IN INTERPRETING MACRO-LEVEL (Industry Level) DATA due to heterogeneity.

Furthermore, the study outlined two (2) DIRECTIONS FOR FUTURE POLICY RESEARCH:

  1. Analyzing the benefits cannot just be reflected in tax revenues and royalties. Benefits calculated in terms of revenue as a metric fall short in providing an integral picture for other benefits can be extracted outside from revenues namely:
    1. Job creation
    2. Community Related Investment/CSR
  2. It is also relevant to go beyond benefits and better reflect NET BENEFITS. Net benefits may be defined and studied in other ways other than profit e.g. mine clean up, rehabilitation, environmental protection funds. Future research on NET BENEFITS must involve a FULL ACCOUNTING OF ALL THE BENEFITS AND GAINS including cost incidence for environmental cleanup and protection in order to clarify the true net benefits for the present and future generations.

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