The government is seeking powers to levy an additional 12 billion soles a year (US$3 billion) in taxes of which some $750 million could come from mining, according to economy deputy minister Alex Contreras.
"This is the large component that would imply a significant increase for structural income in the country, which compared to the rest of the region is the one with the lowest collection. We collect less than half of an OECD country (Organization for Economic Cooperation and Development)," said Contreras.
Castillo wants to use the extra tax revenue to fund social programmes and so deliver on his election promises to better fund health and education. The proposed tax reform will be the first time that the government specifies what tax sources will be spent on: health, education, connectivity and agrarian competitiveness.
Contreras said that with prices for commodities including copper, zinc, silver and gold which Peru produces booming, miners are reporting record profits which means they have capacity to pay more in taxes. "We are in a context of the commodity price boom and extremely high levels of operating profit are being generated. Only those who generate greater profitability are going to pay a little more," he said.
Finance minister Pedro Francke said the government wants to increase mining sector taxes by 3 to 4%, adding that an International Monetary Fund (IMF) study put the sector's current tax burden at 41.7%. "What the IMF is saying is, look, if Peru is at 41.7% and Chile is at 47.1% … raise (taxes), but not in excess, so that you maintain competitiveness," Francke said, reported Reuters.
Mining industry body, the SNMPE, responded by stating that it believes the tax burden of Peruvian mining is almost at the limit. "Mining companies are paying almost half of their profits, between levies and contributions, and we believe that at this juncture any modification, such as the one suggested by the minister, could end up eroding the competitiveness of the [mining] industry."
The chamber said any increase could jeopardise some $50 billion in future investments in the pipeline, while stating that its estimate of the tax take in Peru is close to 50%.
Arguably a bigger disincentive to future investment is the spate of anti-mining protests which have been seen throughout the country as rural communities seek greater benefits from having mining operations nearby, bolstered by having a president [Castillo] they see as representing their interests.
China's MMG is considering suspending operations at its Las Bambas copper mine where road access has been blocked since November 20th in the Chumbivilcas community, which is seeking greater social investment from the mine and access to jobs.
BHP and Glencore temporarily suspended operations at the Antamina mine in Ancash in October after access roads were blocked, while Glencore saw a blockade at its Antapaccay mine and Hudbay Minerals at Constancia.
Opponents to tax increases highlight the fact that it is not a lack of resources that is holding Peru back but effective distribution mechanisms. A report by the Private Competitiveness Council issued earlier this month showed that almost half of the resources provided by canon and royalty payments for projects have still not executed by recipient districts. As of December 1, of the $1.9 billion assigned for projects some $945 million remains to be executed.
