Miners are stuck in a deep hole

Mining firms in Vietnam are facing considerable royalty hikes despite pleas to retain the status quo.

According to Decree 50/2010/ND-CP dated May 14, 2010, from July 1, 2010, providing guidelines for implementation of the Law on Royalties, the royalties on exported minerals in Vietnam shall be calculated on the basis of free-on-board (FOB) prices, meaning miners would have to pay more tax than before.

The new decree will be effective on July 1, 2010. Currently, under Decree 147/2006/ND-CP dated December 1, 2006, the royalty calculation basis is stipulated to be the selling price of a natural resource product unit at the mine sites.

Tran Ngoc Anh, deputy general director of Ban Phuc Nickel Mines, said the new potential royalties would be much higher than expected because all costs including those for transport, concentrating, refining and insurance would also be subject to royalty tax.

“The current applicable methodology of royalty calculation makes sense because the royalties are taxed at the price of minerals at the mine sites. With this method, the royalties are taxed on 30 per cent of the cost of minerals sold,” Anh told VIR.

“But, with the changes issued in the Decree 50, royalties will be taxed on 100 per cent cost of minerals sold. Therefore, effective royalties rate will increase by 2.5 times,” she added. Ban Phuc Nickel Mines is a joint venture, which has invested in a nickel project in the northern Son La province with Canadian listed Asian Mineral Resources a major shareholder.

Nguyen Xuan Tuong, general director of Phuoc Son Gold Mining Company, said increased royalties would make it difficult for Vietnam’s mining industry to call for investment. “We hope the tax rate would be kept intact, because not only all costs but also profits will be calculated in the FOB price that can make miners suffer losses,” said Tuong.

“The current royalty rate applicable to gold is 9 per cent, and with the change of royalty calculation method, the new rate will increase to 22.5 per cent,” he added. Phuoc Son Gold Mining Company, the joint venture of Olympus Pacific Minerals with Quang Nam Mineral Joint Stock Company (Minco), was established in 2003. The company’s mine in the central Quang Nam province covers 70 square kilometres.

Under the Decree 50, metallic and non-metallic minerals, crude oil, coal and natural gas, products of natural forests, natural aquatic products, surface and underground water are all royalty taxable.

VIR

Tags: mining industry, Vietnam mining