On Wednesday, the Chilean government expressed willingness to make further amendments to a controversial mining royalty bill after receiving criticism regarding its impact on the competitiveness of the industry.
The mining industry has levied stiff resistance towards the new tax since President Gabriel Boric first introduced the idea of a new royalty in 2018. Its argument includes that reforms would add uncertainty to investment decisions required to help fill the global copper supply gap as demand rises in the clean energy transition.
The proposed law initially sought a 3 per cent mining royalty for companies exploring and mining lithium and copper. The revised bill includes a 1 to 2 per cent tax on sales for companies producing 50,000 to 200,000 tonnes of copper per year. Additionally, it includes a 1 per cent to 4 per cent tax for those producing over 200,000 tonnes. A second component involves a sliding scale of between 2 and 32 per cent on profits, depending on copper prices.
After the Senate commission approved the law, Finance Minister Mario Marcel said miners have asked for another series of changes that would not affect the proposed law. These could potentially be incorporated in the legislative phase.
Image via Ministerio de Hacienda of Chile.
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Ad valorem component reduced for companies facing operating losses
Among the potential adjustments includes one setting limits on the potential tax burden for the combination of various taxes. He noted in a statement this would give “greater security or predictability to collection.”
The first set of amendments to the bill were presented in July 2022. These involved a new tax to be established called a “mining royalty.” This would repeal the tax on mining activity detailed in Article 64 bis of the Chilean Income Tax Law.
The project underwent major reformulation, including changes such as simplifying and reducing the ad valorem component. An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. Additionally, the variable component will now be based on mining operating margin ranges, and not copper prices.
Furthermore, the ad valorem component may be reduced or eliminated for companies facing operating losses because of its implementation. Additionally, depreciation will now be included in the calculation of the mining operating margin.
Recently, the bill passed the review and discussion period with the Senate Finance Committee. It now goes to the Senate for a vote. After which, it returns to the House of Representatives.
Half the funds received from the royalty will go into a convergence fund to finance regional and communal development projects. The other half would go to finance projects to mitigate effects of environmental issues near communities effected by mining.
The changes would come into force partially in 2024 if approved.
Major mining companies, such as BHP (NYSE: BHP), Anglo American (LSE: AAL), Rio Tinto (NYSE: RIO), Antofagasta (LSE: ANTO), Glencore (LSE: GLEN) , and state-run Codelco operate in Chile.
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