Chilean Senate Commission approves mining canon project, goes to plenary

The Chilean Senate’s Finance Committee approved a new mining royalties bill on Tuesday afternoon that would raise the tax burden on the world’s largest copper producer, bringing the initiative forward for a vote in the plenary session of the Upper House. .

The vote came a day after the government said it had reached an agreement with the senators on the committee. The project could be voted on Wednesday in the plenary room of the Senate and if it is approved, it will have to return to the Chamber of Deputies for a third legislative process since the government introduced several indications during the discussion with the senators.

The initiative establishes a maximum tax rate of 46.5% for companies that produce more than 80,000 tons of fine copper per year and 45.5% for those that produce between 50,000 and 80,000 tons, according to the latest adjustments to the project introduced by the government.

The royalty project, which had started with a 50% tax ceiling but was adjusted several times during the legislative debate and amid criticism from industry representatives, is part of a broad tax reform promoted by the government of leftist Gabriel Boric .

For now, that framework law was rejected by Congress but the royalty continued its legislative discussion regardless of that failure.

As reported by the government, the tax ceiling considers the payment of the royalty along with the other taxes applied to the industry, so if the sum of the taxes exceeds the limit, the royalty will be adjusted until it reaches the maximum percentage established by law. .

The royalties project also establishes a fixed “ad valorem” component of 1% on copper sales for those mining operators whose sales exceed 50,000 metric tons of fine copper and a part that depends on the mining operating margin, between 8 and 26 %.

The National Mining Society (Sonami), which groups the sector, assessed the adjustments to the original proposal but considers that the total tax burden for the sector, considering royalties and other taxes, is still higher than in competing countries.

“We believe that an adjustment is necessary so as not to affect our competitiveness”, said Cristián Argandoña, vice president of Sonami, quoted in a statement.

What is discussed about the new canon?

The new limit of the mining canon or royalty translates into an average effective rate of around 45%, according to the consultancy Plusmining. The countries that represent the greatest competition for Chile have a tax burden of between 41% and 44%.

The royalty for units of mining giants such as BHP Group and Anglo American Plc has been at the center of debate for months amid efforts by the leftist government to increase its share of copper profits without undermining Chile’s competitiveness. Tens of billions of dollars in expansion projects are at stake.

On Monday afternoon, Finance Minister Mario Marcel said he had reached an agreement with opposition lawmakers on the new tax ceiling. The government agreed to amend the bill after a series of electoral and legislative defeats.

Over the weekend, opposition groups won more than the three-fifths majority needed to pass the articles at will in a council tasked with drafting a new constitution. That, after defeats in previous votes to rewrite the Constitution and a sweeping tax reform proposal.

With information from Reuters and Bloomberg