MercoPress. South Atlantic News Agency

Chile considers increasing mining royalty to help earthquake reconstruction

Chile is the world’s leading producer and exporter of copper

Marking a break from established policy, the Chilean government is considering the opposition’s proposal to increase the mining royalty tax. Government ministers are currently studying the implications of a tax increase, the money from which would be used to aid in earthquake reconstruction.

The current 5% royalty tax began in 2005 and brought the government more than 570 million USD in 2008. The mining tax is the only industry-specific tax in Chile.

Though President Sebastian Piñera was against this tax increase during his campaign, he is reconsidering his position in light of the sudden need for cash.

“We said that we were willing to consider [a tax increase] during the campaign”, Minister of the Interior Rodrigo Hinzpeter told local media, “and naturally in these circumstances we are doubly willing to consider it”.

Minister Secretary General Ena Von Baer also alluded to the possibility of a royalty increase following a report on the cost of earthquake repair.

After repeated assurances that there would be no increase, the debate has caught the mining industry off guard. As recently as Monday, Laurence Golborne, the mining minister, insisted that a royalty increase was not a part of the new government’s plan.

Mining executives have expressed concern that a tax increase, particularly a large one, could have a long-term detrimental effect on foreign investments in the industry. Small and medium-sized mining companies expressed particular concern, but both Von Baer and Hinzpeter promised that any change would take their needs into account.

Government sources told local media that the current strong condition of the mining industry would offset any damage caused by increased taxation. The current price of copper is 3 US dollars a pound, up from 70 cents a pound in 2005, and the metal seems assured of going higher. Copper demand is predicted to increase by 7.8 million tons in the next ten years, a demand that even Chile’s abundant mines would not be able to fill.

Currently government officials are analyzing both the legal and fiscal repercussions of an increase. If an increase were to happen, the government would likely make it gradual, as the Ricardo Lagos government did when the royalty tax was first enacted.

The Piñera administration insists that increased mining taxes are just one way being considered to pay for earthquake reconstruction.

By Lindsay Fendt – Santiago Times