September 20, 2011 11:52 pm

Humala rules out further mine tax rises

Peruvian president Ollanta Humala said on Tuesday that there are no other tax increases on the horizon for mining companies operating in Peru beyond those being debated in Congress this week.

The assurance should come as a relief to the mining sector as well as investors in Peru worried that the latest rises could have been part of a trend of ever-higher rates.

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Mr Humala won a surprise election victory in July after making social policy the centre of his campaign and is close to Hugo Chávez, Venezuela’s president. Observers are now closely watching tax policy for clues about the future direction of Peru’s new government.

In an interview with the Financial Times, he firmly denied any further tax increases were planned and said his government would “fully respect the agreements that have already been signed … whether we like it or not”.

Under a new royalty system now under debate, mining companies have agreed to move away from a charge of between 1 and 3 per cent of revenues to a sliding scale percentage of operating profits depending on the level of operating margins.

Miners with long-running tax agreements are not exempt, however. Those such as Xstrata and BHP Billiton, which signed tax stability agreements in the 1990s, must still pay a “special contribution” rate of 4 to 13.12 per cent of profits.

But companies without these prior agreements would now have to pay a ”royalty” rate of between 1 and 12 per cent of profits as well as a “tax” rate of between 2 and 8.4 per cent.

Mr Humala also confirmed that his government expects about $1bn in additional revenues from the new taxes, with the proceeds going primarily towards infrastructure projects. “It will allow us to get the population to look at the mining sector, which is powerful, as contributing towards inclusion,” he said.

Resources are pivotal to Peru’s economy, with copper and gold alone contributing almost half of all exports last year. The country is also rich in zinc and oil and has huge natural gas deposits. “It is the potential God has blessed us with. You dig in, and you will find minerals,” Mr Humala said.

Which is why many wonder what will happen to Peru – and to Mr Humala’s social programme – if metal prices run out of steam. The president takes some comfort from the diversity of Peru’s resources. “If copper goes down. Gold goes up. And we have developed a plan, if a global crisis comes sooner than we expect.”

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