About Royalty – Opinion Article

The winds of change that are shaking our country have reached mining, specifically the recurring debate about its taxation.

Countries are sovereign in determining their taxes, but it will always be advisable to do so in a way that maximizes total social welfare. In the turbulent environment that our country lives, we will have to work hard to achieve a good result.

The first challenge is to place the analysis correctly. The reality that Chilean mining experienced until the last decade is far from the current and future. Chile reached 36% of world copper production in 2007 but has fallen to 28%. Most of the relevant variables (ore grades, productivity) have deteriorated and no improvement is visible. The latest projects built in the country have turned out very poorly and the country’s project portfolio is largely dominated by current mine expansions rather than new projects. There have been no major discoveries in recent years and exploration activity for new deposits has not been in line with what is needed to maintain production in the long term. Therefore, at this time when people are thinking of improving mining revenues, it would not be a bad thing to also think about its sustainability over time, about how Chile will maintain its competitiveness, for which policies that remove the barriers that make it difficult today would help. mining in Chile.

In the tax field itself there have also been important changes: the additional tax on mining activity and the tax reform have increased the effective tax burden. It may be debated if it is enough but it does not seem fair to put the same stick today from 10 or more years ago and therefore it is necessary to compare apples with apples.

Worse still is the gaze of 50 or more years ago that seeks to compare current mining with pre-nationalization mining. There are proposals that indicate that the mining industry would not be well controlled, which is denied by the long-ignored work carried out by Cochilco in the control of export contracts or the SII in tax matters. It even goes so far as to point out that valuable mining by-products would be smuggled in export shipments, completely ignoring the way minerals are traded and the role of the National Customs Service.

Now that more resources are being requested from mining, it would be good if they also discussed the efficiency of their use. Part of the dissatisfaction of the people also goes through a State that in some cases is not capable of solving basic problems such as quality transport, a friendlier city or quality education. Mining could support the regions where it takes place much more if it could pay part of its taxes in them, but that is not allowed by national legislation today. Finally, this debate cannot ignore far-reaching changes such as geopolitical changes (China, the United States and the multipolar world) or new trends such as the decarbonization of the world that will increase the intensity of use of some minerals. How will Chile seek to take advantage of this new stage?

Some countries (Australia) are accelerating their mining industry to be a key player in future trends. These discussions are mostly absent from the national debate, probably because in Chile mining is focused on income and a comprehensive vision is neglected that would allow reaching a greater profit. This is the drama of the vision that considers mining as Chile’s salary: only to milk the dairy cow, neglecting how to develop it. Lithium and copper smelters are there as testimony to major mining issues that have not been resolved.

Source: La Tercera

Translated with Google Translator