The BIR’S ‘disappearing act’
THE Bureau of Internal Revenue (BIR) is certainly no magician. Yet, it has single-handedly managed to make almost all the gold mined in the country disappear from the open market in just over a year. Some quarters point to the tax agency’s hard- nosed stance at collecting taxes from traders selling the gold to the Bangko Sentral ng Pilipinas (BSP) for the ‘disappearance’ of the precious metal. If the BIR fails to rectify this situation, the country might find its gross international reserves (GIR) taking a nosedive – a predicament which will negatively impact our credit standing especially at a time when the Aquino administration is putting out all the stops to attain investment-grade status.
That’s because the gold produced by small-scale miners and sold to the BSP form part of our GIR— the country’s so- called “savings account” that’s used by foreign lenders and investors as an indicator of our capacity to pay our debts and to gauge our credit-worthiness.
Data from the Department of Natural Resources ( DENR)’ s Mines and Geosciences Bureau (MGB) showed that an average of 960,000 ounces of gold is sold annually to the BSP in the previous years. Surprisingly, from 264,000 ounces of gold worth P14.11 billion purchased in the same period in 2011, the gold purchases of BSP went down to a dismal 21,800 ounces worth P1.35 billion in the first quarter of this year—an unbelievable 92 percent drop.
So how did we find ourselves in this hole?
By law, all gold mined by small-scale miners should be sold to BSP. Many such miners and their traders actually prefer to sell their gold to the BSP because they are paid immediately and at current world prices.
The DENR observed that the decline in gold purchases began during the second semester of 2011 when the BIR started to strictly enforce the collection of the ‘gold tax’—consisting of a 2percent excise tax plus a 5-percent creditable withholding tax ( CWT) on the sales of gold to BSP— from small- scale miners and traders while at the same requiring the BSP to deduct the ‘ gold tax’ before paying these miners and traders.
As expected, small-scale miners and traders shied away from the BSP’s five gold- buying sta- tions in Baguio City, Davao City, Zamboanga City, Naga City and Quezon City after the BIR set up desks in these stations.
Under current tax regulations, only those who directly sell gold to the BSP are taxed. But for small- scale miners— most of whom come from subsistence families— the BIR’s 7- percent “gold tax” spells the difference between having food on the table and going hungry.
Moreover, from the mining site, the gold produced by smallscale miners pass through the hands of several traders. The last trader—who is usually the seller of the gold to BSP—is the one being charged by the BIR with the “gold tax.” However, with the successive mark-ups in the supplychain and the costs incurred in buying the gold, the last trader is obviously unwilling to shoulder the entire tax as it will significantly reduce his profit margin.
So where is all that gold now going? Everywhere it seems except to BSP.
It’s common knowledge that gold merchants continue to ply their trade in the gold-rich mining areas in the countryside. This means most of the country’s gold production ends up in the black market. Reports indicate that many traders are now selling the gold to foreign buyers who in turn smuggle it out to Hong Kong. In fact, while official data from Hong Kong reveals it imported 81,192 kilos from the Philippines last year, the country’s official records showed that the legal exports of gold to the Chinese territory was only a fraction of that amount.
The BIR admittedly does not have the manpower or resources to go down to the mining sites to collect taxes from each and every miner and trader. If it wants to generate tax revenue from this “hard-to-tax” sector (much like the seasonal “tiangge” vendors and roving street peddlers), it must heed the advice given by BSP Deputy Governor Diwa Gunigundo during an interview in our radio program “Karambola sa DWIZ.” He urged the BIR to accommodate the “realities of the trade, especially in the case of small miners” by coming up with a formula where the “gold tax” is applied to an adjusted tax base instead of the gross amount of gold sold to BSP.
Besides, what use are BIR’s regulations if it can’t collect any taxes at all?
Meanwhile, the government is losing hundreds of millions of pesos of much- needed tax revenue to the gold black market. The BIR can do its share in easing the country’s tight fiscal situation— and preserving the country’s credit standing— by making its rules more palatable and achievable.