Chile poised to increase taxes on mining

"...the Chilean Legislature was discussing increasing royalties to new mining projects from 4-­‐9 percent to 5-­‐14 percent starting in 2018. This will significantly affect several large new projects according to the union that groups the biggest mining companies in Chile, since the effective burden is currently between 4 and 5 percent. However, there seems to be a favorable political environment to increase taxes to these companies. For example, public opinion in Chile is considering that mining profits are rising at the expense of necessary investments costs that mining companies tend to avoid or cut—think about worker’s personal safety, when the nation is still in shock after the successful rescue of mining workers trapped in a coal mine.

"Nevertheless, this is a recurrent topic in correlation with the economic cycle and countries depending heavily on taxes from natural resource royalties should be taking a close look. In Peru, the Central Bank President announced an investment boom of more than US$38 billion from 2010-­‐2012, mainly in the mining and oil sectors. Nevertheless, the results of the sub-­‐national government elections show that at least three regional governments (Junin, Cusco and Cajamarca) have been elected under a platform very critical of mining activities. Although sub-­‐national governments cannot change royalty policies, they can certainly affect the political support of mining activities in their respective regions."

Implications:

"Chile and Peru rely heavily on private investment and their central governments particularly on taxes from mining companies. However, as it has been indicated in previous articles, this debate will continue and affect investment decisions of mining companies. In the meantime, it will also serve as a pretext to mobilize population for political purposes."