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Quebec proposes new tax regime on mining
May 8, 2013

The Quebec government introduced a new proposed tax regime that would impose higher taxes on the province’s mining industry. The government said the plan is aimed at ensuring that all companies pay tax and that their contributions rise with the rate of profit growth. It said the current system allows some companies to mine resources for long periods without paying royalties.

However, opponents of the new plan say it will hinder the sector’s growth and kill potential jobs and investment.

Like most of Canada’s provinces, Quebec needs to find new funding sources to bring its heavy debt load under control. But miners in the province–faced with falling profits because of slipping demand and prices for commodities—oppose the higher taxes, The Wall Street Journal reported.

Miners in Quebec produce some 30 metals including gold, silver, copper, zinc and nickel, providing direct and indirect employment for 45,000 people in the French-speaking province. In 2012, the industry attracted 5 billion Canadian dollars ($4.97 billion) in investment and since 2010 it has paid on average C$710 million annually to the Quebec provincial government in taxes and royalties, according to the Quebec Mining Association.

Quebec estimates the new tax regime will provide up to an additional C$200 million in annual revenues for the government’s coffers between now and 2020.

The Quebec Mining Association opposes the new plan in part because it comes only three years after the previous provincial government hiked mining royalty rates. “Now we are changing the royalty regime again so it’s not a very good sign we are giving…investors,” Josée Méthot, the industry group’s president, told Canada Real Time.

Quebec ranked 11th in the Fraser Institute’s most recent survey of mining investment conditions around the world, down from fifth in the prior survey, and below its first place ranking between 2007 and 2010. The decline reflected growing concern in the global mining community over changes to Quebec’s provincial mining law and royalty regime, the right-leaning think tank said in the survey, released in February.

Quebec’s new royalty system requires companies to pay the greater of two amounts: a royalty rate of 1 percent for the first C$80 million worth of ore extracted and 4 percent beyond that threshold; or a graduated tax on profit margins that rises as margins increase.

Méthot said the introduction of a tax on ore extraction could be particularly harmful to the economy by forcing struggling mining companies to shut down and layoff their employees.

“A mining tax solely based on profits” makes the most sense for Quebec, she said.

 

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 Canada    Quebec    Taxes