Chile Amends Mining Royalty Bill with Ad Valorem Tax

Chilean government on Tuesday amended its mining royalty bill amid industry criticism, removing provisions that assessed higher rates for larger miners and linked payments to copper prices, while implementing a flat 1% ad valorem tax rate for large producers. The original bill was first introduced in July and drew criticism from mining giants like BHP and Antofagasta, who argued that it would negatively impact competitiveness and investment in Chile, the world’s largest copper and second largest lithium producer.

The finance and mining ministries announced that the new proposal would impose a flat rate ad valorem tax of 1% on large scale copper miners that produce more than 50,000 tonnes annually. The ad valorem tax would not be assessed if operating margins are negative.

Additional royalties would be assessed at rates fluctuating from 8% to 26% based on miners’ operating margin, rather than being adjusted according to the price of copper as was originally proposed.

Depreciation, as well as supply and work costs, would be taken into consideration in calculating operating margins.

The government’s amendments will be evaluated at the mining and energy committee of Chile’s congress before continuing with the legislative process.

“Considering these changes, it is estimated that the mining royalty would collect an additional 0.6% of GDP, of which 0.46% of GDP would be the product of the new structure and the remaining 0.15% the result of growth in production and costs,” the Finance Ministry said in a statement.

The original bill established two components for royalty payments: The first was an ad valorem tax ranging from 1% to 2% for producers of between 50,000 and 200,000 of fine copper and from 1% to 4% for those over that limit.

The other component was royalty rates between 2% and 32% on profits for copper prices between $2 and $5.

Both components were to have varied based on the copper price.

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