As the world’s number two producer of copper and silver, Peru’s mining sector is the lifeblood that has revitalized the South American nation’s economy. However, social disparities still run rampant, particularly amongst the country’s indigenous groups. The left-leaning government of Peru is now asking Congress to approve a bill to raise mining taxes in order to fund anti-poverty projects.
The bill looks to replace the current royalty system, which is based on sales instead of operating profits. The current royalty structure collects between one and three percent on mining sales, but does not extend to all miners operating in Peru.
The new bill would require mining companies with jurisdiction stability agreements to pay a “special contribution” of between 4 and 13.12 percent of profits. Miners that have not signed the agreement will be expected to pay between 1 and 12 percent of profits. If the bill becomes law, then these miners will also have to pay a “special tax” of between 2 and 8.40 percent.
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However, major miners operating in Peru, such as BHP Billiton, Xstrata and Barrick Gold, have had an agreement in place with the Peruvian government since the early 1990s stating that the country would not raise royalties.
Considering that the Peru’s ruling leftist party does not have a majority presence in Congress, it will have to try and convince opposition lawmakers that the bill is in the best interest of Peru.
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While mining companies agree that the new bill would give clear rules to Peru’s mining sector, it would also detract foreign investment.
Peruvian President Ollanta Humala, who took office in July of this year, made the campaign promise to fund anti-poverty programs and this new bill seems to be the catalyst to make that happen.
