Peru’s Mining Tax Change to Maximize Revenue, Castilla Says

Peru’s overhaul of its mining tax system will maximize government revenue while ensuring companies proceed with more than $40 billion of investment in new mines, Finance Minister Miguel Castilla said.

Companies won’t pay more than 50 percent of their operating profits under the new tax regime, Castilla told reporters in Lima. The government will send the legislation to congress today, he said.

President Ollanta Humala won June 5 presidential elections on pledges to raise mining royalties and tighten state control over natural resources. Peru, the world’s third-largest producer of copper and zinc and sixth of gold, boosted first-half mining export revenue by 31 percent as gold prices climbed to an all- time high.

“The new legislation will maximize government revenue, protect the competitiveness of the industry and preserve the juridical security of contracts that have been signed,” Castilla said.

Under Peru’s existing system, royalties are based on sales. The new system will be fairer because it levies taxes on operating profits instead of revenue, Castilla said.

Companies with contracts that protect them from higher taxes will be subject to a separate levy on profits, he said.

Windfall Tax

Mining companies agreed last month to pay the levy, which would provide the government with an annual windfall of 3 billion soles ($1.1 billion) based on metal prices in the first half of this year, Cabinet Chief Salomon Lerner said Aug. 25.

The figure “is an approximate number, as with falling copper prices the tax may be lower,” Southern Copper Corp. (SCCO) Chief Executive Officer Oscar Gonzalez Rocha, said in an interview yesterday. “The tax will be paid when it becomes law, which may be Jan. 1, but with the government’s urgency, they may bring the date forward.”

The Andean country is relying on investments by companies including Southern Copper, Newmont Mining Corp. (NEM), and Xstrata Plc (XTA) to halt a decline in minerals output as aging mines deplete. The expansion of copper and zinc mines will boost production next year, Mining Minister Carlos Herrera said Sept. 9.

Peru’s sol was little changed at 2.7315 per U.S. dollar at 2:44 p.m. in New York, compared with 2.7310 yesterday.

Stimulus Package

Rising metal prices will allow the government to post its first fiscal surplus since 2008 this year and help pay for a package of stimulus measures designed to counter the effects of a global slowdown, Castilla said.

The government will have a fiscal surplus of more than 1 percent of gross domestic product, even after spending 0.5 percent of GDP on the stimulus, which it will implement before the end of this year, he said.

“We’ll initiate a preventive economic stimulus to mitigate a likely decline in activity next year,” Castilla said. “The winds that are blowing aren’t going to be favorable for Peru or the world.”

The government will accelerate small infrastructure projects and step up the rebuilding of the southern coastal town of Pisco, which was devastated by an earthquake in 2007, he said. The government is also studying measures to help exporters if demand for their products contracts.

The $153 billion economy remains “solid” and may have grown 6 percent in July from a year earlier, Castilla said.

Peru’s National Statistics Institute will publish a report on July’s GDP tomorrow. The economy expanded 5.3 percent in June and 6.6 percent in the second quarter of this year, according to the agency.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net