June 06, 2004 | By Keith Martin in Washington, DC

PERU is expected to impose a tax of up to 3% on mining companies on their gross revenue from mineral sales.

The tax must still pass Congress. 

The government, in bid to soften the blow to the mining industry, has proposed that existing mining operations that are covered by taxstability contracts with the government should be exempted from the tax. Roughly 70% of existing mines have such contracts. The contracts are promises by the government not to alter tax rates during the term of the contract as an inducement to the mining company to invest in Peru.The government also wants the tax rate to vary between 0.5% to 3% depending on the size of the mining company and to let mining companies claim a credit for any taxes paid against the income taxes the companies otherwise have to pay the government. This would turn the tax into a timing difference: companies would merely pay taxes earlier in time that they would have owed anyway. 

The debate in Congress has been delayed several times. The mining industry remains strongly opposed.

Meanwhile, Chile is expected to impose a similar tax of up to 3% on gross sales of mining companies.  Companies with operating margins of less than 5% will be exempted. Any tax paid can be offset against
a company’s income taxes. However, the income tax credit would have to be spread over three years.