MercoPress. South Atlantic News Agency

Mining companies agree to pay Peru an extra billion dollars annually

Prime Minister Salomon Lerner ratifies economic growth with social inclusion

Peru has reached an agreement with mining companies that will raise the industry’s annual payments to the government to about one billion dollars, the government said on Thursday, fulfilling a campaign promise by President Ollanta Humala.

Humala took office in late July, vowing to tax mining companies' windfall profits to bolster social programs in a country where one of every three people is poor. Mining accounts for 60% of Peru's export revenue.

The new royalty rates have not been set yet but a sliding scale will be devised to take individual company profits into account, reported Pedro Martinez, the head of Peru's mining company association.

The royalty rates should be defined “in the next couple of weeks,” the sector's lead negotiator added.

Companies now pay royalties of between 1% and 3%, charged on sales in the world's No. 2 copper producer and No. 6 gold producer.

Mines Minister Carlos Herrera said the new levy will be applied to operating profits instead of sales, a change that mining companies supported.

“We want to announce today that we have ensured mining companies will make tax payments of approximately 3 billion soles a year,“ Prime Minister Salomon Lerner told Congress, where he was presenting Humala's government plan.
This tax will not affect investment or companies' competitiveness,” he said.

Last year, miners contributed 646 million dollars in royalties and paid corporate income taxes at a rate of 30%. It was unclear whether Lerner was referring to revenue from royalties alone or overall tax contributions.

Mining profits have surged on the back of record high gold, silver and copper prices this year.

Humala's government has been under pressure from his backers to act on campaign promises to improve the lot of the poor, after he pleased investors by appointing a pro-market economic team.

In his speech, Lerner reaffirmed Humala's commitment to gradually improving social programs.

“We will not have an economic policy that is divorced from our social policies,” he said. “Our model of economic growth with social inclusion implies a profound, gradual reform of the state and its ties to society.”

Lerner also said the government would aim for economic growth of at least 6% a year.
Large international mining firms including Xstrata ,BHP Billiton , Anglo American , Barrick Gold , and Grupo Mexico's Southern Copper operate in Peru.

Peru collects a mere 15% of GDP in taxes, well below the nearly 35% of GDP in Brazil and less than the 18.2% in Chile.

“The announcement of a negotiated agreement between the government and mining companies eliminates one of the remaining sources of uncertainty about the overall direction of policies in Peru,” Goldman Sachs analyst Eduardo Cavallo wrote in a research note.