Mining royalty tax approved by lawmakers in Mexico

April 19, 2013

A congressional committee in Mexico passed a proposal that would levy a 5 percent royalty tax on mining profits in Mexico, Reuters reported.

The plan was put forward by lawmakers in President Enrique Pena Nieto's Institutional Revolutionary Party with the intention of boosting revenues from the industry that produces the most silver in the world.

The proposal was approved by the economics committee of the lower house of Congress and would redistribute profits to the states where foreign and domestic companies mine.

Currently, Mexico charges mining companies an income tax of 30 percent. Regional competitors like Brazil and Peru have already imposed mining royalty schemes in addition to charging mining companies an aggregate tax levy on profits of more than 34 percent.

The plan is part of a broader drive by Pena Nieto to improve Mexico’s tax take, which is the lowest in the 34-nation Organization for Economic Co-operation and Development, Reuters reported.

Under the proposal, mining firms would pay a 5 percent charge on net profits before tax. Mines not yet producing would pay a low, almost symbolic per-hectare fee on their concession.

Seventy percent of the revenues would go to the states and municipalities where mining occurs, for infrastructure and development, with the rest going to a federal development fund.

If it becomes law, the plan could generate between $250 million and $500 million in extra revenues per year, experts say.

“We don’t want this to be seen like vengeance,” said PRI congressman Adolfo Bonilla, the architect of the bill. “These companies have been reaping the benefits for years. We’re not talking about an industry without revenues, without profits.”

If the law passes another committee vote early next week, the bill could be put to the floor of the lower house later that week, Bonilla said. If approved, it would move to the Senate.

While the PRI and its allies should be able to muster a majority in the lower house, it is short of votes in the Senate.

Mining in Mexico accounts for nearly 5 percent of gross domestic product and is the fourth-largest industry behind carmaking, electronics and the oil sector.

Reforming the mining sector was part of a pact Pena Nieto unveiled in December between the country's main political parties to work together on economic reforms. But Bonilla’s bill was drawn up outside the pact, and has come under fire.

The conservative National Action Party (PAN) and senior figures in the Party of Democratic Revolution (PRD) have withheld their support for the initiative, and officials say a more comprehensive law should be presented.

If it is approved, it would likely take effect by March 2014, when companies file tax returns, the PRI’s Bonilla said.

The planned measures also face opposition from the country’s mining industry, which fears they will hurt business.

“It will, without doubt, affect investment, the creation of jobs and finally competitiveness, and that’s why we’re opposing it,” said Sergio Almazan, director of mining chambers Camimex.

Nonetheless, most foreign miners said they did not oppose the royalty regime as long as it remains stable.



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