The purpose of the bill is to establish a royalty to the holders of mining concessions that are in production. The royalty proposed in the initiative is 4% on net profits (i.e., taxable income less authorized deductions) as determined by the Income Tax Act, except that no deductions would be allowed for financing costs, taxes or depreciation and amortization.
The bill does not mention if the proposed royalties would be tax deductible or if tax losses may be used to reduce the royalty payments.
The current system of charging mining rights per hectare would continue except that the bill proposes changes in determining the mining rights for mining concessions that are deemed to be “unproductive” which is defined to be “no exploration or exploitation activity for two consecutive years in an eleven year period.” As such, mining rights for unproductive concessions are proposed to be increased by 50% commencing in the eleventh year of ownership. Mining rights are proposed to be doubled for mining concessions for which no exploration or exploitation activities have been carried out for more than twenty years. Mining concessions in production would not have to pay mining rights.
In addition, the initiative includes the creation of a regional development committee for defined mining zones. Each committee would be comprised of a representative of each of the three levels of government, as well as two representatives of the local mining companies. Where there exist local indigenous communities, the committees would also include one representative from that community. The purpose of the committees is to authorize works and actions that the mining companies must carry out for sustainable social and urban development. The costs of such works are proposed to be creditable against the payment of mining rights.
This bill has been sent to the Economy and Finance Commissions of Congress to be studied.
The introduction of this bill follows the January 31 announcement by the Secretary of Economy, Ildefonso Guajardo, that this year Mexico’s federal government will introduce a number of new initiatives to reform the Mining Act, the primary purpose of which will be to ensure that those communities in which the mining industry operates participate in the benefits generated by mining activities.
After study by the Economy and Finance Commissions, the proposed bill would have to be read before Congress and then ultimately approved by both the Chamber of Deputies and the Senate before it can be signed into law. This could be done before the end of the year.
KPMG will provide you with an update on any new developments with respect to this proposed reform to the Mining Law.