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PERU: Seeking Ways to Remedy Unequal Distribution of Mining Taxes

Milagros Salazar

LIMA, Aug 1 2008 (IPS) - The Peruvian parliament is studying ways to improve the distribution of the “canon minero”, the portion of the taxes paid by mining companies that is transferred to the regions, in order to benefit the country’s poorest provinces.

But while there is broad agreement on the need to redistribute the tax, no one appears to be willing to give up any part of their own share to make it a reality.

“We won’t let them take a single cent from us. We also have poor people,” the governor of Áncash province, César Álvarez, told IPS.

Áncash, in Peru’s northern highlands region, is the province that received the largest amount of revenue through the canon minero fund, which is distributed to local and regional governments to be used for social spending, public works and infrastructure.

The taxes in that province mainly come from the Antamina mine, operated by Canadian, British, Australian and Japanese corporations.

As a result of the boom in metals prices over the past few years, the canon minero has climbed from 607 million dollars in 2006 to a projected 1.85 billion dollars this year.

But distribution is lopsided, with just five of Peru’s 25 provinces receiving 60 percent of the canon minero funds.

Huancavelica province, where more than 80 percent of the population lives in poverty, received a mere 13.4 million dollars from the canon minero fund last year, because unlike Áncash, it is not a major source of minerals like zinc, copper and molybdenum.

The canon minero is the direct economic compensation received by the provinces where non-renewable resources like minerals, natural gas and oil are extracted. Under Peru’s current legislation, 50 percent of the taxes and royalties taken in by the Peruvian state from the extractive industry must be transferred to the regions.

To reduce the inequalities inherent in the system of distribution of the funds, a multi-party parliamentary commission has proposed 12 modifications to the canon minero law, including a provision that 16.2 percent of the tax go to the provinces with the greatest unmet basic needs.

To establish the percentage that should be distributed to the poorest regions, the commission determined that the national government does not actually transfer to the provinces 50 percent of all of the mining revenue it collects, as the law stipulates, but actually disburses only 33.8 percent and keeps the rest: 16.2 percent.

That is because in its interpretation of the law, the executive branch only includes in the canon minero half of the Income Tax (IR) paid by mining companies, while excluding other taxes, like the Selective Consumption Tax (ISC) or the General Sales Tax (IGV).

“First they should distribute to us the portion that they confiscated, and later the central government should assign the poorest provinces part of the other 50 percent of the money left in its coffers,” Hugo Ordóñez, the governor of the southern province of Tacna, told IPS.

“We also have the right to receive funds,” said Huancavelica governor Federico Salas, “because these non-renewable resources belong to the entire country, not to just one region. And it is not acceptable for one part to be getting rich when a majority of Peruvians continue to live in absolute poverty,” he told IPS.

Tacna is one of the provinces that benefit the most, receiving 274 million dollars from the canon minero last year. Within the province is the district of Ite, with just 1,905 people, which received 30.8 million dollars – three times the entire budget of poverty-stricken Huancavelica, a province of 447,000 people.

What Ite takes in as a result of the activities of the Mexico-based Southern Copper Corporation allows it to spend 16,296 dollars per person a year, compared to the national per capita average of 141 dollars.

The distribution of the canon minero is not only lopsided between provinces, but within them as well, since the districts where the minerals are extracted receive exorbitant sums while neighbouring villages and towns receive no benefits at all.

One illustration is the district of San Marcos, where Antamina extracts the minerals, which saw its canon minero income soar from 141,843 dollars in 2004 to 74.8 million in 2007. And although Antamina transports minerals through seven other districts, they receive no canon minero funds.

In such cases, Congress proposes earmarking a percentage of the canon minero funds for these areas, based on the number of residents, the proportion of the population living in rural areas, and the poverty level.

“These are areas that also need some kind of economic compensation to spend on public works that enable them to develop when the company no longer operates in the zone,” economist Edgardo Cruzado, one of the technical experts sitting on the legislative commission, commented to IPS.

The chairman of the commission, lawmaker Washington Zeballos, called on all of the political parties in order to take their views into account and get the initiative approved by Congress.

One of the modifications proposed by the commission is the creation of a transparent system to account for the taxes and royalties paid by the mining companies, because the executive branch does not currently provide detailed accounts on the firms’ contributions and how they are used by the government.

On Thursday, Economy Minister Luis Valdivieso met with the country’s provincial governors to discuss measures to improve social spending. In the closed-door meeting, the provincial authorities pressed for mechanisms to compensate the regions that do not receive canon minero funds, and asked for transfers of funds from the central government’s education and health budgets, among other demands.

The government of Alan García attempted to redistribute the canon minero last year, keeping 10 percent of the total regional transfers for the poorest provinces. But none of the funds would have come from the central state coffers.

“Everyone has to contribute something, not just some…otherwise, what kind of social justice are we talking about?” asked Nilton Quiñones, an expert on decentralisation with the Grupo Propuesta Ciudadana, an umbrella group of non-governmental organisations working at the provincial and national levels.

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