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Guatemala: Mining royalty payments set to increase (from IKN379)

Here’s one of the reports in the ‘Regional Politics’ section of The IKN Weekly, out yesterday evening.


Guatemala: Mining royalty payments set to increase

Last week
in the politics section we noted the slight mystery of a new Vice-minister of
Mining in Guatemala. This week the reasons behind the change may have become
clear, as the country’s President Jimmy Morales announced (10) a whole range of
tax increase proposals that include a bump of duty on fuel from Thee Quetzals
(GTQ) to Five Quetzals (1 Quetzal = U$0.133) per US gallon, additions to VAT
(sales tax) and corporate income tax back up to 29% (from 25%).

All those
will affect mining costs in Guatemala indirectly, but the one that really
matters is the Jimmy Morales proposal to raise royalties on extractive
industries (i.e. O&G and mining) from 1% to 10%. At the moment, several
mining companies in Guatemala are paying more than the legally stipulated 1%,
with “voluntary payments” topping up royalties to between 5% and 5.5% (the
highest profile cases are Goldcorp at Marlin and Tahoe Resources at Escobal). But
the royalty initiative is only one of a total of 47 changes proposed by parliamentarians
the current Mining Law, there will be a lot to talk about next week including one
of the other main events a clause to give official prior consultancy rights to
locals directly affected by any mining project. Theoretically this law already
exists as part of the OIT169 international rule book to which Guatemala is a
signee, but the country now wants prior consultancy in its own organic law.

The law projects
will be debated and voted on in parliament next week and once passed, they’re
most likely to come into effect on January 1st 2017 (the usual date
in Guatemala for fiscal changes, but that’s only an assumption at this stage
and there’s nothing to stop them from effecting them immediately). The package
is likely to pass largely to the government’s liking too, with influential
people such as the US Ambassador to Guatemala making off-record noises of
approval for the reforms and the anti-corruption body CICIG approving (and set
to receive more State funding as a result). We should also note that the 10%
mining royalty isn’t the most extreme proposal out there, as the centre-left
TODOS party, an umbrella political coalition made up of several smaller groups
typically connected with indigenous rights and rural communities that controls
just 18 of the 158 parliament seats in Congress, counter-proposed on Friday a
law that raised royalties on mining operations to 25% (11). The 25% level is
unlikely to pass however, it has the look of the radical outlier that lets the
government proposed 10% pass more easily.

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