The impact of the mining royalty on the fiscal coffers since 2007

By the end of the last decade, the specific tax on mining activity, better known as royalty, came to represent almost 4% of tax collection. However, once the super cycle of raw materials has passed, their weight within the nation’s budget has diminished year after year. At least until now: with the price of copper over US $ 4 per ton, the benefits that the large miners could obtain will increase, as well as the State. But it was that same rise in the red metal that opened the way for discussion in Congress about whether it is necessary to increase the tax.

On Wednesday the Finance Commission of the Chamber of Deputies rejected the idea of ​​legislating a modification to the royalty, although the Mining Commission of the same chamber had previously approved it. With this, the articles will be voted in the room, where the future of the initiative will be seen.

Based on a bill presented in 2018 by opposition parliamentarians, the bill seeks to tax 3% of the nominal value of the minerals extracted for both copper and lithium. This modifies the current law (which already changed the 2005 legislation), which levies a variable rate on the mining operating margin, which can range between an effective rate of 5% and 14%.

“The marginal rate of royalty paid by mining companies is progressive, because it goes up as the operating margin of the companies increases. If the price of copper were to remain at high levels during the year, the companies’ margin would be higher and also the marginal rate they would have to pay, ”says Matías Acevedo, Budget Director.

In fact, according to Dipres calculations, if the copper price averages US $ 4 this year, the marginal rate of the royalty would be 10.5%, but if it rises to US $ 4.5 and thereby increases the margin, the tax would be 15.5%.

But how much has the tax collected since its inception? According to the budget execution reports for the fourth quarter of each year from the Budget Directorate (Dipres), from 2007 to 2020 the royalty (including Codelco) has meant income for the country of more than US $ 9 billion, the peak being the years 2011 and 2012, with US $ 1,198 million and US $ 1,269 million, respectively. Of course, the largest contribution to state income occurred in 2007.

Although since then the contribution has declined, in 2021 the situation promises to change. According to data from Dipres, last year the royalty meant almost US $ 240 million for the treasury and for this year the figure could increase as copper has risen 16.7%. In fact, last February it reached US $ 4.36 a pound, its highest level since August 2, 2011.

The 2021 budget is made with a price of US $ 2.88 per pound, in circumstances that already on the London Metal Exchange is above that, and that the average price for 2020 was US $ 2,803, according to Cochilco.

At the end of January, Cochilco raised the average projection of the copper price for this year to US $ 3.30 a pound compared to the previous estimate of US $ 2.90 a pound, but for the year 2022 it predicts that the value average metal will be around US $ 3 a pound.

According to figures from the Mining Council, an entity that groups together the large private mining companies in the country, in the period 2005-2014 the companies generated US $ 290 billion, of which 25.5% was paid in dividends, 16.2% were invested %, 45.9% was paid to workers and suppliers, and 12.4% was allocated to various taxes, including royalty. And for the 2016-2019 period, of the US $ 140 billion they achieved, 6% was paid in taxes and 16% went in dividends.

Only considering the payment of taxes of the 10 private mining companies, say the data of the largest entity (representing about 80% of production), in the last 20 years (2000-2019) the payment of taxes has been of US $ 46 billion, -an average of US $ 2,300 annually- that has represented 5% of the fiscal income.

Not everyone is aligned with raising taxation. According to the senior economist of Libertad y Desarrollo (LyD), Tomás Flores, “we are at the limit of the tax burden on mining, so an increase like the one proposed in the motion would leave us with the highest mining taxation in the world.”

According to calculations by the study center, based on an E&Y report that estimated Chile’s effective tax burden for the sector at 44.5% -the second highest after Australia-, by incorporating the charges of the bill under discussion the total tax burden in Chile would rise to 54.3%, becoming the country with the highest total tax burden for the mining sector.

Last week in conversation with Radio Infinita, Congressman Giorgio Jackson pointed out that “the effective rates are much lower than the theoretical rates (…) and after 15 years the specific tax has not been significant.”