Congress approves a new mining royalty

CHILE - In Brief 17 May 2023 by Robert Funk

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After working its way through the legislative maze for four years, Chile’s mining royalty law was approved today in Congress. The bill, which will become law once the president signs it, seeks to tax large-scale mining companies according to a differentiated schedule. The new rules will tax companies' operating margins as well as sales. It establishes a progressive rate of between 0.4% and 4.4% on the margin for companies that produce between 12,000 and 50,000 metric tons of fine copper per year. Those producing over 50,000 metric tons will be taxed within a range of 5% to 14% (and, if more than 50% of their production is copper, rates rise even further, to 8% to 26%) with and additional ad valorem tax of 1% over sales. It is worth recalling that the government spent many months negotiating a formula that would be acceptable – or less objectionable – to the opposition and the mining industry. For example, they reduced the ad valorem tax on sales to 1%, down from the 4% that had been proposed, and the 8% to 26% range had originally been proposed at 2% to 36%. The bill also limits the maximum potential tax burden, calculated on adjusted mining operating taxable income. This ceiling was established at 46.5% for mining companies producing over 80,000 metric tons of fine copper and 45.5% for those producing less than that. Given recent events in Chile, President Gabriel Boric’s unpopularity and the government’s poor showing in the Constitutional Council elections two weeks ago, the approval of the royalty is a huge political win for the government. It is an especially big win for Finance Minister Mario Marcel, who spearheaded the negotiations. The mining industry is less th...