Disquiet in Québec as govt proposes tax, mining law changes – by Simon Rees (MiningWeekly.com – August 2, 2013)

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TORONTO (miningweekly.com) – Like others across Canada, exploration and mining companies operating in Québec are suffering fierce economic headwinds and depressed metal prices, particularly so for gold. However, the gloom is doubly deep as concern mounts over the province’s newly proposed mining tax and Mining Act, both unveiled in May.

Under the current system, mining operations pay a 16% tax on net profits. The rate was pushed up from 12% during the previous Liberal government’s tenure. But for the Parti Québécois (PQ), led by Premier Pauline Marois, the increase was not extensive enough – it went on to call for a 5% tax on all mining activity and a 30% supertax on companies achieving profit margins over 8%.

“I think the PQ was looking towards the Australian model of increasing taxes on the mining sector, reasoning it could be applied to Québec . . . But most of our mines are smaller-scale operations. While some might have made good money, almost all reinvested profits into upgrading or expanding existing operations,” Institut de la statistique de Québec mining and natural resources specialist Raymond Beullac tells Mining Weekly.

“KPMG fairly recently released a report on Québec’s mining sector, highlighting the number of small-scale mines in production but unable to produce a taxable profit under the current mining tax regime,” Norton Rose Fulbright partner with specialist knowledge of the mining, oil and gas sectors Jean-Philippe Buteau tells Mining Weekly. “However, it’s worth noting that they still play an important role, employing local people both directly and indirectly. They also pay other corporate taxes and pay their workers excellent wages.”

The PQ formed a minority government in September 2012, after winning 32% of the popular vote in the provincial elections.

“Their subsequent learning curve has been steep. It’s easy when you’re in opposition – you can disagree all day long. But when you come to power, suddenly you have to think differently,” Beullac says. “I think they quickly realised that increasing tax rates could prove the difference between continued operations and closures.”

“An increased tax burden can reduce the value of an investment and can shorten mine life on a marginal asset. In a worst-case scenario, it can precipitate a closure decision,” QMX Gold president and CEO François Perron tells Mining Weekly. “Tax hikes also impact on exploration [and development], as they can change the viability of a project’s economic prospects.”

THE TAXMAN COMETH

The PQ unveiled its new tax proposals on May 6, tabling a hybrid regime whereby companies either pay a fixed tax on output or a tax on profit, whichever proves the greatest sum.

The fixed tax will stand at 1% for companies whose output at the shaft head is under $80-million in value. The rate increases to 4% if the output is over $80-million in value. The profit tax will be progressive, starting at 16% on mines with profit margins below 35% and rising to 22% for profit margins between 35% and 50%. A top bracket of 28% will be imposed if profit margins exceed 50%.

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