Mining in the Philippines holds significant potential as a profitable industry. The latest Mines and Geosciences Bureau data shows that 9 million hectares are identified as having high mineral potential but only about 12% is claimed by mining tenements as of mid-2024. Various challenges including environmental concerns, social equity issues, and the rights of local communities and indigenous peoples prevent the Philippines from fully maximising its vast mineral wealth.
However, recent regulatory developments show a newfound focus on mining as a key driver of economic growth, while at the same time recognising the need of safeguards to balance the various challenges. The government grants several incentives to investors, contractors and other stakeholders in the mining industry.
Regulatory shift
In 2021, Executive Order No. 130 lifted a nine-year moratorium on the execution of new mineral agreements to address the country’s under-utilisation of its mineral endowment.
Anticipating possible environmental issues due to increased mining activities, the Department of Environment and Natural Resources (DENR) promulgated Administrative Order No. 2022-04 to promote sustainable development and utilisation of the country’s natural and mineral resources.
DENR AO No. 2022-04 aims to provide adequate measures for responsible mining towards ensuring biodiversity conservation and protection, including progressive and final rehabilitation of mined-out areas and minimised negative impacts on biodiversity.
Additionally, Republic Act No. 11995, or the Philippine Ecosystem and Natural Capital Accounting System (PENCAS) Act was enacted in 2024, to monitor interaction of the environment, economy and society through a comprehensive information system and accounting framework. This should provide indicators facilitating integration of environmental and natural resource concerns in planning and policymaking, and allocating budgets.
Incentives
On income taxes, contractors who incur a net operating loss without the benefit of incentives during the first 10 years of operations may carry over such a loss as an allowable deduction for the next five years immediately following the year of such a loss.
Also, assets used in mining operations with an expected life of 10 years or more may be depreciated over any number of years between five years and its expected life, allowing for accelerated depreciation.
Additionally, contractors in mineral agreements and financial or technical assistance agreements are granted tax and duty exemptions on imported capital requirements for exploration of mineral resources, and processing of metallic and non-metallic minerals to produce semi-processed mineral products. To balance mining activities with environmental protection, pollution control devices are not subject to real property and other taxes or assessments.
Outlook
Ongoing reforms in the sector aim to refine regulatory procedures and enhance predictability and stability for mining business in the Philippines.
President Ferdinand Marcos Jr has advocated for a simplified fiscal regime for the mining sector. At present, tax obligations for mining contractors vary based on their agreements with the government.
Recently, the senate passed Senate Bill No. 2826, which proposes a 5% royalty on the gross output of minerals or mineral products extracted from large scale metal mining operations within mineral reservations, and a sliding royalty of 1%-5% on large-scale mining operations outside mineral reservations based on income margins. Meanwhile, the House of Representatives are pushing for a 4% royalty in House Bill No. 8937. Both houses will harmonise these bills when the congress reconvenes after the elections.
Further, the DENR will streamline the process for obtaining mining exploration permits, mineral agreements and financial or technical assistance agreements (FTAA). The proposed renewal term for exploration permits would be six years (from four years) and FTAA negotiations will now be conducted by the environment secretary. The mining permit application process is also shifting to digital platforms to attract investors and reduce the processing time to two years.
Takeaway
By streamlining regulations, offering attractive incentives and fostering a stable business environment, the Philippines is strengthening its position as a competitive destination for global mining investments.
Authors:
Enrique V Dela Cruz Jr, Partner
Email: enrique.delacruz@divinalaw.com
Ciselie Marie T Gamo-Sisayan, Partner
Email: ciselie.gamo@divinalaw.com
Izzel Jarviz M Arzadon, Senior Associate
Email: jarviz.arzadon@divinalaw.com
Kristina Mae C Durana, Associate
Email: kristina.durana@divinalaw.com