According to Fitch Ratings, Chile may increase the tax burden on copper producers by around 5 pp without materially harming the industry or affecting its competing.
Alejandra Fernandez, a director at Fitch Ratings who covers the mining sector in Latin America, stated in a conversation. “I don’t think it would have an impact if the tax burden went up by five pp. And achieved a level of approximately 42 percent, a little bit higher than 40 percent.” It would be acceptable and wouldn’t cause any major distortions.
The left-leaning govt of Chile is attempting to increase its share of profits from massive mines controlled by businesses like Broken Hill Proprietary Company Limited Group & Freeport-McMoRan Inc. in order to pay for social programmes after a more comprehensive tax reform plan was rejected.
The sector concerns that the present version of a royalty law will undermine competition & investments even though it is willing to pay more.
In order to preserve the overall tax load for each company at a maximum of 50 percent. Finance Minister Mario Marcel revised the law this week to ensure that the royalty rate would change. As a result, the sector average rate would remain much below that mark.
However, disagreements about present tax rates, with the govt forecasting the effective rate at 33 percent. And the sector claiming it is nearer to 40 percent, confound discussions over how high taxes should go. Different hypotheses on the amount of profit distributed as dividends help to explain a large portion of the disparity.
However, after several adjustments, the concept is now “significantly more reasonable,” according to Fernandez. Minister Marcel actually stated on Thursday that he would be open to discussing a lower ceiling.
A 40 percent effective rate increase “wouldn’t generate a distortion,” she claimed. We can say, though, that it would create a more distorted scenario if it is actually nearer to what the industry is predicting, which is that it would hit 50 percent.