UPDATE 2-Peru asks Congress to raise mining taxes

Wed Sep 14, 2011 7:56pm EDT

Related Topics

* Scheme aims to increase tax revenues from mining sector

* Peru is world's No. 2 producer of both copper and silver

* Miners say industry could become less competitive (Adds details, background, comments from mining company)

LIMA, Sept 14 (Reuters) - Peru's leftist government presented a bill to Congress on Wednesday that aims to increase mining taxes to fund anti-poverty projects.

The scheme aims to replace the current royalty system, which is based on sales rather than operating profits. The current system calls for royalties of between 1 percent and 3 percent on sales, although it does not apply to all miners.

If approved, mining companies with jurisdiction stability agreements will have to pay a "special contribution" of between 4 percent and 13.12 percent of their profits.

Major miners in Peru including Xstrata XTA.L, BHP Billiton (BHP.AX) and Barrick Gold (ABX.TO) signed stability agreements in the 1990s that bar the government from rising the royalties they pay. [ID:nN1E780220]

The ruling party does not have a majority in Congress, so it will need to negotiate with opposition lawmakers to get the bill approved.

The bill calls for royalties of between 1 percent and 12 percent on profits of miners that have not signed the agreement. If the bill is made into law, they will also have to pay a "special tax" of 2 percent to 8.40 percent on their profits. [ID:nN1E77O14L]

The country's largest precious metals miner, Buenaventura (BVN.N), does not have a tax agreement, and some agreements have recently expired, including that of Southern Copper (SCCO.N), controlled by Grupo Mexico (GMEXICOB.MX).

Mining companies said the new royalty system could bring clear rules to the sector, but they are concerned that it will make the sector less attractive to foreign investors.

"The industry is almost at a point in which it may no longer be competitive," Juan Luis Kruger, general manager of South American operations for Gold Fields (GFIJ.J), said during a mining convention in the southern city of Arequipa.

Securing more funds from the booming mining sector to fund anti-poverty initiatives was a key campaign promise from leftist President Ollanta Humala, who took office in July.

Humala has said the state must do more to guarantee that rural communities share direct benefits from new mining and oil projects and to ensure that Peru's natural gas should supply fuel to consumers before being exported. [ID:nN1E76R0ZP]

Peru is the world's No. 2 producer of copper and silver and the No. 6 gold producer. Minerals account for about 60 percent of its exports. (Reporting by Marco Aquino; Writing by Eduardo Garcia; Editing by Gary Hill)

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