Digging deeper through the new fiscal regime for mining
By: Atty. Lew Earvin H. Manarin on September 11,2025
MINING remains one of the Philippines’ most underutilized sectors despite the country’s vast mineral reserves and growing global demand for raw materials. The recently enacted Republic Act (RA) 12253, or the Enhanced Fiscal Regime for Large-Scale Metallic Mining Act amended certain provisions of the National Internal Revenue Code (Tax Code) and aims to modernize the country’s mining tax system by establishing a more equitable, transparent and competitive fiscal framework.
One of the key provisions of the law is the amendment to rules governing the deductibility of interest expenses for income tax purposes. Specifically, interest incurred by a mining operator on related-party debt is now deductible, provided that the operator maintains a quarterly debt-to-equity ratio not exceeding 2:1 at any point during the taxable year. This represents a departure from the rule set out under Section 34(B)(2) of the Tax Code, as implemented by Revenue Regulations 13-2000, that generally disallows interest deductions on related-party indebtedness. This new rule not just provides clarity but also encourages legitimate financing arrangements between related parties. Notably, the debt-to-equity cap will discourage tax base erosion through excessive borrowing.
The Act also revamps the royalty tax system applicable to large-scale metallic mining operations. Mining activities conducted within mineral reservations will remain subject to a 5-percent royalty on gross output. For operations outside such reservations, however, a margin-based royalty is now imposed. The royalty is computed based on income derived from mining operations — defined as gross output less allowable deductions directly attributable to mining activities, excluding royalties and windfall profits taxes. Royalties are nonrefundable and non-creditable, even when minerals are exported.
The collection of royalties, previously under the jurisdiction of the Mines and Geosciences Bureau, is transferred to the Bureau of Internal Revenue.
The Act also amended the Tax Code to impose a graduated windfall profits tax (WPT) ranging from 1 percent to 10 percent depending on the profit margin of a mining contractor. The WPT applies when a contractor’s net income from mining exceeds 30 percent of its gross output and thereby capturing a larger share of profits earned during periods of high commodity prices. The tax base is computed similarly to the calculation used for royalties, wherein costs directly attributable to mining operations are deductible, but corporate income tax and royalty payments are allowed as additional deductions. Optional standard deduction is not allowed in computing liabilities under this provision.
While concerns may be raised about the potential for double taxation, since the WPT base may be viewed to overlap with that of the corporate income tax, Sen. JV Ejercito, in his sponsorship speech, explained that the measure is intended to enable the government to secure a fairer share of profits during commodity booms while minimizing opportunities for aggressive tax planning. He emphasized that the WPT is designed to capture a larger portion of earnings when metal prices are high and mining companies are generating above-normal returns.
To reinforce the integrity of the new fiscal regime, the law introduces the concept of “ring-fencing” mining operations. Each mineral production sharing agreement (MPSA), or financial or technical assistance agreement (FTAA) held or operated by a contractor is treated as a separate taxable entity. This prevents companies from offsetting losses from one project against profits from another, ensuring that each operation is taxed on its own merits and reducing the risk of revenue leakage through inter-project shifting.
The law also amends Section 287(A) of the Tax Code to allow the release of the share of local government units (LGUs) in the proceeds from the development and utilization of natural resources directly and immediately to them, without further action or interference from the national government and free from any lien or holdback. This share is in addition to the business taxes that LGUs may impose, which are capped at 50 percent of 1 percent of the contractor’s gross output. This amendment will directly benefit the LGUs from the resources extracted in their jurisdictions.
While forward-looking in its fiscal vision, the Act also respects existing legal commitments. MPSAs and FTAAs executed before the law’s effectivity will continue to be governed by their existing terms, unless such agreements provide for the automatic incorporation of future laws and regulations. This preserves the integrity of contracts while allowing operators to voluntarily align with the new regime if permitted.
To complement these fiscal reforms, the law also includes provisions that institutionalize public oversight to enhance transparency and accountability. Businesses engaged in the exploration, development and utilization of mineral resources are now subject to public disclosure requirements under the Philippine Ecosystem and Natural Capital Accounting System Act. These disclosures are exempt from confidentiality provisions under the Tax Code and the Revised Corporation Code.
Finally, the transitory provisions state that large-scale metallic mining contractors and operators will be subject to the new fiscal regime within 150 days from the law’s effectivity, giving stakeholders a transition period to comply with the revised tax framework.
While primarily intended to increase government revenue, RA 12253 introduces a simpler and more sustainable fiscal regime, aligned with international standards on transparency and accountability. This creates a more predictable and competitive framework for mining taxation. The measure’s success, however, will ultimately depend on consistent implementation, robust oversight and strong collaboration across sectors.
Lew Earvin H. Manarin is a CPA-lawyer and a junior associate at Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment, email the author at info@mtfcounsel.com or visit the MTF website at www.mtfcounsel.com.
The article was published at the More to Follow Column at The Manila Times on September 11,2025.
Please see this link. https://www.manilatimes.net/2025/09/11/business/top-business/digging-deeper-through-the-new-fiscal-regime-for-mining/2182367