Evaluating the Large-Scale Mining Fiscal Regime in the Philippines

Economies that derive substantial government revenues from natural resources face the unique challenge of implementing fiscal regimes that deliver a fair share of rents without discouraging private investment in extractive sectors. However, designing progressive and non-distortionary fiscal tools requires an evaluation of the current fiscal regime and the extent to which it captures the resource rent – the surplus return above the value of capital, labor, and opportunity costs incurred to exploit the resource. To evaluate the efficiency of the Philippines’ fiscal regime, we compare the resource rent to government revenues from mining activity. Then, we estimate the effective tax rates under the current fiscal regime and other combinations of fiscal tools. First, we look at aggregated tax payments of all large-scale mining companies over a ten-year period and compare them with the estimated resource rent. Second, we model the different tax regimes using firm-level data from a nickel mine. We propose a fiscal regime for the mining sector in the Philippines that is least distortionary while appropriate given the country’s regulatory context and administrative capacity.