Mining Royalty: Mining and Energy Commission approves project after executive instruction and goes to Treasury

The Senate Mining and Energy Commission approved and sent the Mining Royalty bill, an initiative that modifies the taxation of companies in the sector and which provides that a part of its collection is destined for research and development and local and regional authorities . The text will now go to the Upper House Finance Committee for review.

It should be remembered that the first indications for the project were presented in July 2022, as one of the subjects covered by the Tax Reform of the government of President Gabriel Boric, and another package was included last October following talks with the private sector and parliamentarians of the specialized body.

Among other things, the tariff scale is being modified to apply the tax based on the operating margin of mining companies producing more than 50,000 tons of fine copper, which will fluctuate between 8% and 26%. For the calculation of the operating margin it is allowed to discount the expenses of productive labour, contributions and depreciation. In addition, it has been proposed to introduce a flat rate ad valorem tax of 1% for large-scale copper mining whose exploitation exceeds 50,000 tonnes of fine copper, thus excluding medium-sized mining. In the event that the operating margin is negative, the payment of this tax will not proceed.

Both articles were approved today with separate votes (3 votes in favor and 2 abstentions in the first case; and 4 votes in favor and 1 abstention in the second), while the rest of the articles were unanimously issued by the senators of the commission: The president Loreto Carvajal (PPD), Juan Luis Castro (PS), José Miguel Durana (UDI), Rafael Prohens (RN) and Esteban Velásquez (FRVS).

During the session, the Minister of Finance, Mario Marcel, He thanked the work done in recent months by the Commission’s parliamentarians, underlining that this initiative generates important challenges both for the local mining industry and for the management of fiscal resources. “On our part, there has been every willingness to contribute to a rapprochement of positions and to generate a new royalty that increases fiscal resources which, in turn, can also be channeled largely towards the Regions and Municipalities, including those affected by the mining activity. And, in the same way, being able to invest by the State in materials that help diversify the country’s production base”, commented the head of the tax portfolio.

While, the undersecretary for Regional and Administrative Development (Subdere), Nicolás Cataldostressed before the Commission that “we have excellent news for the municipalities of the country, since the bill creates two new funds that will go to the municipalities with greater dependence on the Municipal Common Fund, which have a lower permanent income and which need it most And also to those mining municipalities that assume the negative externalities of what the mining process is”. And he added that “we are taking an important step in the commitments that our president Gabriel Boric has made within his government program, and also those that have been formulated in recent months in meetings with mayors at a national level”.

Meanwhile, after the approval of the initiative, the Minister of Mines, Marcela Hernando, he highlighted that “the project is generating the necessary consensus for its progress, there has been a dialogue and the suggestions of senators, unions and other guests have been collected to generate fair compensation mechanisms for the exploitation of natural resources without losing competitiveness on international markets ” .

Increased funds for the regions

Before the vote in the Commission, the Executive presented a series of indications that modify the distribution of the resources collected by the Royalty to the regions.

In total, $450 million will be injected into municipalities and regions across the country, with a focus on mining areas, more than the $420 million projected last October. This new amount represents 36% of the estimated royalty collection, increases the own resources of the Regions and Municipalities by 17% and quadruples the tax contributions to the Municipalities.

The distribution will take place through three funds:

  • The Offshore Compensation Fund for Mining Communities will receive an injection of $55 million annually (800,000 UTM), which represents an increase of $35 million over October guidance. Furthermore, the definition of beneficiary municipalities is extended to those that have tasks other than deposits, but directly related to mining.
  • The Territorial Equity Support Fund will be resourced at $170 million annually (2,500,000 UTM), which is an increase of $100 million from October guidance. Furthermore, the formulation relating to the distribution rules is improved, it is established that the calculation will take into account the income of the previous year, and that the payment will take place in four annual installments instead of two.
  • The Regional Fund for Productivity and Development will receive an annual grant of US$225 million, and will be distributed under the rules of the National Fund for Regional Development.

In addition to these increases, it should be noted that the funds for the municipal benefit will be freely available and usable without time limits and cumulative from one year to the next. In addition, a publicity and control over resource use rule is added, and Congress must be notified.

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