Written by Ian Cardenas, Paralegal
Chile’s “Mining Royalty” bill, which aims to raise 0.6% of the country’s GDP, is now in its second constitutional procedure in the Senate.
This bill is one of the alternatives presented after the rejection of the tax reform at the beginning of March, which would allow the necessary resources to be raised to be able to carry out the measures and transformations proposed by the government.
How would the bill work?
It modifies the scale of rates to apply the tax based on the operating margin of mining companies producing more than 50,000 metric tons of fine copper, which will fluctuate between 8% and 26%.
The bill establishes that for the calculation of the operating margin, the expenses of the production site, inputs and depreciation may be deducted. In addition, it was proposed to establish an ad valorem tax at a flat rate of 1% for large copper miners whose production exceeds 50,000 metric tonnes of fine copper, thus excluding medium-sized miners.
In the case of a negative operating margin, this tax would not be payable.
Developments in the Royalty Minero project
Likewise, among the modifications that the Executive introduced last year to the bill, a distribution of its resources to regions is included, by means of three funds that in total would add up to US$ 450 million.
The “Support Fund for Territorial Equity” will have resources of US$ 170 million annually, which implies an increase of US$ 100 million with respect to the October indications, benefiting 302 communes that depend on the Common Municipal Fund.
On the other hand, the “Regional Fund for Productivity and Development” will receive an annual contribution of US$ 225 million, and will be distributed in accordance with the rules of the national fund for regional development to the Regional Governments.
These modifications were part of the negotiations between legislators and the executive in the Senate Mining and Energy Committee. In January of this year, the members of the committee approved the bill and sent it to the Treasury, which has not yet communicated when it will meet to evaluate the bill.
The initiative is well advanced in legislative matters. It entered Congress in September 2018 and in May 2021 it was approved and sent to the Senate by the Corporation. Now, in this second constitutional procedure, all that remains is for the Finance Committee to review the bill and then send it to the Chamber for a vote.
What will happen with the revenue raised?
“One thing that distinguishes mining projects above all other industrial activities is the timeframe. A small mining project takes two to three years to mature; a medium mining project takes five to 10 years; a large mining project takes up to 25 years. This is because first the mineral resource has to be detected in depth, then it has to be cubed to arrive at a tonnage and a grade. Then, with that figure in hand, the mineral resource must be exploited and processed, which takes a long time.”
– Miguel Zauschkevich, president of the Chilean Chamber of Mines.
The bill establishes three funds with the aim of ensuring that the funds raised by the royalties are invested back into the mining communities and areas that support Chile’s mining industry. The first fund is called Compensation of Externalities for Mining Communities; the other, the Territorial Equity Support Fund; the third, the Regional Fund for Productivity and Development “So, I ask that the law really ensures that the funds will go to the destination that has been indicated and not to the General Budget of the Nation,” said Zauschkevich.
Conclusion
The mining sector directly employs around 270,000 people in Chile and each one of them gives rise to up to three indirect jobs in transport, drilling, tunnel construction, food and all the other services in the value chain provided by suppliers. Taking these jobs into account, the mining industry employs around 1 million people in Chile, which is equivalent to a staggering one-sixth of the workforce.
