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Quebec Finance Minister Nicolas Marceau and Natural Resources Minister Martine Ouellet on Monday, just after presenting a plan to raise mining royalties. (CLEMENT ALLARD/CP)
Quebec Finance Minister Nicolas Marceau and Natural Resources Minister Martine Ouellet on Monday, just after presenting a plan to raise mining royalties. (CLEMENT ALLARD/CP)

MINING

Quebec tax hike targets miners as slump hits industry Add to ...

The Quebec government is boosting its take from a mining sector already beset by a global downturn, introducing minimum royalty payments and other tax increases aimed at generating up to $200-million a year.

Those increases are less than what the Parti Québécois promised during last’s year’s election campaign – an acknowledgment, the government said, that the drop in commodity prices meant it had to scale down its plans for increasing revenue from the sector.

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The new taxes are in addition to existing federal and Quebec general corporate taxes.

According to the Quebec government, at least 10 mining companies didn’t pay any taxes to the province in 2011. The proposed changes, to take effect in 2014, take aim at those firms, requiring that any mining operation pay the higher of two fees: either a royalty on production (with a 1-per-cent tax on the first $80-million on the value of the mineral output, increasing to 4 per cent after that point) or a graduated tax based on a firm’s profit margin (starting at 16 per cent and rising to a top rate of 28 per cent).

Quebec Finance Minister Nicolas Marceau estimated that, depending on mining activity and profits, the new regime will increase government revenues between $73-million and $200-million a year in 2015. Mr. Marceau said that over the next 12 years, the province could increase cumulative revenues up to $1.8-billion.

The amount falls well short of the average $388-million a year over five years the PQ promised to extract from mining companies.

Mr. Marceau said a 25-per cent decrease in metal prices since 2011 forced the government to revise its strategy. “There are less profitable mining companies right now…I never accepted the logic of a fixed amount Mr. Marceau said. “The context has changed. It would have been irresponsible to achieve the figure [of $388-million per year].”

Mr. Marceau said that over a 12-year period, the province could increase revenues up to a maximum of $1.8-billion, which will go to paying down the province’s debt.

The mining industry said it is “extremely disappointed” in the changes, which come just three years after the last change in the royalty and tax regime. “Given the difficulties the industry is now facing, this is not the time to change the rules,” said Josée Méthot, president of the Quebec Mining Association, warning that some firms could postpone projects. Ms. Méthot noted there are no new incentives to encourage mining projects.

Quebec’s royalty and tax hikes come as the global mining industry suffers billions of dollars in writedowns amid a slump in commodity prices.

Major mining companies, which overpaid for acquisitions at the peak of the commodity cycle, have watched demand slow and prices tumble for everything from aluminum to coal to iron ore. The worldwide slowdown has also meant that many project proposals remain on the drawing board because they have been rendered uneconomic due to low commodity prices.

Renault-François Lortie, an associate at the KPMG-Secor consulting firm, said Quebec’s royalty and tax regime for mining is now the most demanding in Canada. “For a company like Tata, which has iron projects in both Quebec and in Labrador, it might encourage them to favour Newfoundland and Labrador,” he said.

But it all depends on the way the new regime will be applied, as there are some additional deductions that might mitigate the raise in royalties, he said.

Environmentalists, however, criticized the government’s increase as insufficient. “They could have done much, much more,” said Ugo Lapointe, cofounder and spokesperson for the Quebec Meilleure Mine coalition, which campaigns for environmentally friendly and socially responsible operation of mines.

With files from Brent Jang in Vancouver

Follow on Twitter: @S_Cousineau

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