Tax on large mining comes into force in Chile. What does it consist of?

The so-called mining “royalty”, a tax on large mining with which the Chilean government aims to raise 0.45% of GDP annually (about US$ 1,350 million), came into force this Monday in Chile, the first producer of copper of the world and the second largest lithium.

By a large majority, last May the Chilean Parliament approved a royalty law that had been under discussion for more than four years and which also establishes that a third of the proceeds (close to US$ 450 million) will be allocated to regional governments and municipalities.

“We were able to generate agreements and innovative solutions that satisfied all the sectors involved,” The Minister of Finance, Mario Marcel, highlighted this Monday in a statement, who rejected that the new tax has discouraged investment, as several sectors denounced.

Between March and June of this year, the minister explained, “the estimate of mining investment for the five-year period increased by US$ 10,000 million and in the last months of this year we have seen the announcement or entry of new mining projects such as Quebrada Blanca and Centinela”.

This, Marcel added, “accounts for the greater certainty that the dispatch of this bill meant”.

Controversy over taxes on large mining

The tax includes a component “ad valorem” and one subject to the operating margin of between 8% and 26% for those companies that produce more than 50,0000 tons, which is considered large mining.

He “royalty” It also sets a maximum effective tax rate (the ceiling that large mining companies will pay in taxes) of 46.5% of operating profit.

The Government of President Gabriel Boric, which had initially proposed a tax ceiling of 50%, adjusted the figure during the parliamentary debate and introduced several modifications after receiving criticism from industry representatives.

The tax on large mining was part of a broad tax reform promoted by the Executive, which was rejected by the Chamber of Deputies and whose discussion will be resumed this year.

Chile, which accounts for 28% of world copper production, produces an average of six million tons of copper per year and mining represents close to 15% of the national GDP.

The country also has the world’s largest exploitable reserves of lithium, known as “white gold” and essential for electromobility.

The entry into force of the new tax takes place days after the state copper company Codelco and the Chilean lithium producer SQM announced the creation of a public-private partnership to exploit lithium in the coveted Salar de Atacama until 2060.