Taxing miners

Chile advances bill to increase taxes on copper and lithium miners but will it pass into law?

The National Congress of Chile is approaching the final stages of the implementation of a mining bill that will impose additional taxes on copper and lithium sales.

The law was comfortably approved by the Chamber of Deputies in May and will impose a 3 per cent tax on sales of over 12,000 tonnes per year of copper and 50,000 tonnes per year of lithium. Also included in the proposal is an increase in the progressive tax on gross sales related to the copper price, ranging from 15% to 75%, up from the current 5% to 14%.

This would put Chile’s mining taxes among the highest of any major copper producing country.

Since the first vote, support for the opposition-backed bill has declined as left-leaning parties have lost political clout, meaning the Senate vote was much closer with 18 to 16 voting in favour of the main text, with the bill now returning to committee where amendments are expected to soften its bite.

We have discussed the bill with several senators on both sides of the house. One right-leaning senator summarised, “In its current form, the bill establishes radical increases in the taxation of large mining companies, making Chile an unattractive investment destination and putting the country’s leadership in the industry at risk. We have serious concerns about the effects of such measures on employment and the economy.”

“In its current form, the bill establishes radical increases in the taxation of large mining companies, making Chile an unattractive investment destination and putting the country’s leadership in the industry at risk.”

Right-leaning senator, Chile

The Left sees the proposed bill as an opportunity to fund new social initiatives at a time when the divide between the rich and the poor has widened, due to the pandemic.

A Chilean political analyst commented, “The mining bill is floating on political winds. It was popular in May when the Left was on the ascendancy but has been losing support ever since as the ruling Centre-Right has regained ground. A similar trend has been observed with the AFP withdrawals and the Constitutional Convention – the public are upset about inequality but are not prepared to sacrifice the country’s economy.”

“The mining bill is floating on political winds. It was popular in May when the Left was on the ascendancy but has been losing support ever since.”

Political analyst, Chile

Unsurprisingly, mining industry stakeholders oppose the bill, arguing that increasing the tax burden would at best limit investment and at worst force some companies out of the country. A spokesperson for BHP said that the new law, coupled with an increase in global metal prices would scare mining investors in Chile, which accounts for almost 25% of global copper production.

Many questions still remain, most notably about how the new taxes would be implemented. Opposition parties, that proposed the new law, said that the new royalty would replace taxes on profits. However, government officials warn about the dangers of a creating parallel tax systems that could increase tax burdens to 80%.

The political analyst also expected the bill to be watered down or vetoed, “The recent result of the first round of the presidential election, in which the right-wing conservative candidate José Antonio Kast outperformed the left-wing reformist candidate Gabriel Boric, suggests that the Congress is expecting greater resistance from the electorate about any radical changes, so they are taking more conservative positions.

Both candidates have modifications to the bill on their electoral programmes, likely meaning that the fate of the law will only be known after the second round of the presidential elections on 19 December 2021.

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