Chile's Senate has delayed for nearly three weeks a vote on an opption-backed bill that could raise taxes on copper mines by up to 75 percent.
Chile first proposed the bill in 2018, which calls for a 3 percent royalty on annual production of more than 12,000 tons of copper and sales of 50,000 tons of lithium. The bill would impose a tax of up to 75% on copper, based on the price of the metal.
Half of the money collected from the royalties will be used to finance funds for regional and community development projects. The other half will be used to directly fund projects to mitigate, compensate or rehabilitate the environmental impacts of mining activities on nearby communities.
Goldman Sachs Group Strategists said in May that the legislation, which faces multiple procedural hurdles, could put 1 million tons of annual copper production at risk, or 4% of global production. The bank notes that more than half of Chile's foreign-owned copper mines are under a tax stability agreement that expires in 2023, limiting the immediate risk of the bill's eventual passage. But future mine development will face the risk of tax increases.
Chile's current copper tax system includes a 27% corporate tax and a special tax or royalty on operating profits of up to 14%, depending on productivity. Copper mines of less than 50,000 tons per year pay 9%.
Chile's Mining and Energy Commission has been debating the bill for seven weeks, but no date has been set for a vote. The proposal has passed Chile's lower house of Congress. The bill's supporters argue that provincial governments are not adequately compensated for mining mineral resources, and that the new tax would change that. But mining giants warn that the proposed law will drive out new investment and make some mining operations and expansions economically unviable. If the Senate passes the bill, Sebastian Pinera's government is likely to block its passage. Lawmakers from the current ruling coalition proposed a so-called constitutional reservation, laying the groundwork for taking the bill to court.
Chile is the world's largest producer of copper. It also holds about 52 percent of the world's known lithium reserves.
