Brazil Eyes New Tax on Big Mining

Source: Reuters (6/21/11)

"Finance ministries are considering a 'special participation' tax on large mining projects."

Reuters

Brazil could create a new tax on large mining projects as part of the government's overhaul of the mining code, a local paper reported on Tuesday.

The mining and finance ministries are considering imposing a so-called "special participation" tax on large mining projects similar to one that already exists in the oil sector for high productivity fields, the Folha de S. Paulo newspaper reported, without naming sources.

The proposal would levy the tax on 25% of the existing mining concessions, the paper said, including the main projects of Brazil's Vale, the world's largest iron ore miner.

The proposal would make up part of a broader overhaul of regulations covering Brazil's mining sector, which would also include a potential increase in royalties that companies must pay to the government.

The special participation tax would be applied to gross revenues from production, and deducted from investments in exploration and operational costs, Folha reported.

It would come on top of royalties that mining companies already pay that currently stand at roughly 2% of net revenue. Analysts in recent months have said they expect the government to raise royalty rates.

The mining industry opposes tax increases, particularly the royalty increase, saying that it would reduce the Brazil's competitiveness because mining companies already have a high overall tax burden.

The government expects to send a draft bill to Congress in the second half of 2011, after more than a year of discussions with the industry.

Separately, Brazil's mining industry group Ibram said iron ore production will double by 2015 to 787 million tons a year from the current 370 million tons, and that Vale's dominance in the local market will diminish with new mining investments by other companies.

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