Chile’s mining royalty debate heats up

Lawmakers of Chile’s lower house recently restarted the debate on a copper and lithium royalty bill, but although representatives of the mining industry have made public their concern about its potential effect on investments, the proposal has been supported by some academics, economists and lawyers.

On Wednesday, mining engineer and professor Gustavo Lagos told the finance committee of the lower house that the mining taxes debate is not new and will not end with the approval or rejection of the bill.

The bill would add a 3% tax on the ad valorem value of over 50,000t/y of lithium carbonate extracted and 12,000t/y of fine copper.

“There is room in the past to say that Chile has charged less than it could have [in mining taxes]. That’s why I propose that whatever is done, it means bigger tax collection coming from mining,” Lagos said.

Currently, miners pay corporate tax of 27%, and a mining tax of 5-14% on operating profits, depending on production rates.

Lawyer Ricardo Guerrero told legislators that taxes are not a determining factor in investment decisions.

“What is convenient is to have a robust and efficient State that facilitates the development of mining. It’s not about saying that when you raise taxes, investment goes away. The relationship is not linear,” he said.

According to Juan Carlos Guajardo, head of consultancy firm Plusmining, it is uncertain what effect a new tax would have on future investments as Chile is facing a challenging scenario due to political volatility.

“Mining investment decisions depend on several factors, not only taxes. Chile has important strengths but also recent relevant weaknesses. We must also consider other countries’ situations where the scenario for mining is not easy,” he told BNamericas.

“A tax increase never helps to attract investment, but its effect in the case of Chile is uncertain due to the magnitude of other challenges currently underway … Political volatility makes it difficult to predict scenarios.”

According to economist Hernán Frigolett, the country’s fiscal mining income is also a relevant part of the debate, as it has not been defined properly.

“The price used to determine mining income isn’t well calibrated, nor is it audited by the Chilean State … There is an undervaluation in the prices of exported products,” he told the lawmakers.

Frigolett highlighted that Chile does not have control mechanisms on mining products’ shipment processes.

Economist Gino Sturla also pointed to inspection and transparency as key aspects.

“We don’t know the details of the shipments leaving Chile …If customs had independence to carry out inspections, tax collection would increase,” he said.

It is expected that on March 17 representatives of Chile’s national mining association Sonami will provide the industry’s perspective to the finance committee.

Source: BNamericas