Asia Tightening Screws on Mining Companies

Governments of resource-rich Asian countries are slapping new levies and tightening screws on mining companies, hoping to extract more revenue from natural assets to cover ballooning infrastructure and public works costs.

In the next round of Philippine President Rodrigo Duterte’s tax reform program, the finance department plans to impose a royalty tax equivalent to 5% of the market value of mineral products extracted or produced. The levy is to be based on gross output and exclusive of all other taxes, and will be imposed on sites declared to have mineral reserves, according to local media reports, Nikkei reported.

The Philippines doubled excise taxes on metallic and nonmetallic resources to 4% and 2%, respectively, last December.

The heavier tax burden could affect the development and production of nickel, copper and their byproducts, including gold. The chamber of mines of the Philippines hopes the policy, if passed, would only apply to future projects and not existing ones that have finished feasibility studies.

The new pressure comes as the industry continues to reel from mine closures carried out by former environment secretary Gina Lopez, an activist.

Duterte himself has been critical of mining. In an address to congress last year, he issued a stern warning to companies that fail to rehabilitate mined areas. “I will tax you to death,” he said.

Mongolia, meanwhile, is squeezing the developer of Oyu Tolgoi, one of the world’s largest copper mines. The government ordered Turquoise Hill Resources, a subsidiary of Anglo-Australian giant Rio Tinto, to pay $155 million in back taxes. Rio Tinto handed over $5 million in an effort to maintain its ties with the government, but the relationship could turn sour at any moment.

Over in Indonesia, President Joko Widodo appears to be tapping into nationalistic sentiment over resources as he embarks on his re-election campaign.

On Aug. 10, the day after he declared his candidacy for the April 2019 presidential election, Widodo told supporters that the Mahakam oil and gas block and a copper mine owned by US company Freeport-McMoRan must be used for the people of Indonesia.

In July, Indonesia agreed to pay $3.85 billion to Freeport-McMoRan and Rio Tinto for a majority stake in the operator of the copper mine by the end of the year. Voters appear to appreciate Widodo’s determination to reacquire resource interests from foreign companies.

Rallying prices of crude oil and other commodities have lifted the earnings of resource companies, making it easier for governments to go after them. In the long run, though, the arm-twisting could backfire.

“New levies will prompt foreign companies to hold off on additional investments in resource-rich countries that put pressure on them,” said Takayuki Honma, senior economist at Sumitomo Corporation Global Research. Some, he said, will look to procure resources elsewhere.

“That could lead to low productivity and make it difficult for resource-rich countries to maintain price competitiveness.”