08 Sep Cesco presents Royalty proposal to Senate
Some of the proposed objectives of The Center for Copper and Mining Studies (CESCO) are, to increase the incomes significantly when prices; and therefore, the operational margins, are high. As well as, generate a balanced distribution of mining income among the state, owner of resources and mining companies which invest their capital and assume business risks. In addition, keep a competitive position as a mining jurisdiction to attract new investments in the area.
Considering the discussion which is taking place in the Energy and Mining Commision at the Senate, about the project which promotes a new tributary regime for the mining sector, The Center for Copper and Mining Studies (CESCO) presented a proposal according to the matter.
The initiative is complemented with the investigation conducted by Michel Jorratt, David Peters of Dictuc-UC, and the academic and Cesco member, Gustavo Lagos.
Cesco states that by using this structure, the effective tributary tax associated to this royalty would be higher than the tax obtained by the Specific Mining Tax (IEAM), even when there are reduced operational margins (less than 30%) and radically superior to IEAM within favourable market conditions, reaching values of 50% approx of Mining Operating Margin (MOM or operating income defined as the difference between mining sales and operating costs, without considering incomes nor financial expenses).
In addition, it is important to note that the proposed outline more than doubles (in cases, even triples) the earnings associated with specific taxes related to the mining activity, reaching effective tax rates over 45%, compared to the current effective rate which is around 40%.
Higher tax burden to this proposal, may risk the development and expansion of the mining activity and its corresponding contribution to the country.
Specifically the proposal considers:
- Mix royalty structure which considers a 1% tax ad valorem in addition to an increasing scale in relation to the mining operating margin (MOM), similar to the current specific mining tax (IEAM).
- Keep the current contractually pacted invariability with the state of Chile and therefore, the new regime must provide new legal investment invariability, similar to article 11 from DL600.
- Keep the norm which exempts small and medium scale operations from these taxes. Based on pre established criteria in the current IEAM and due to the economical and social contribution which they represent.
- Royalty should consider different amounts according to the type of product sold by the franchisee, in order to encourage melting and refinement.
- In relation to funds destination, a new strategic scientific, technological, knowledge and innovation design should be considered, installing a corresponding plan which especially takes into consideration regions that provide mining activity.