BSP seeks to exempt gold sale by small-scale miners from taxes

The Bangko Sentral ng Pilipinas (BSP) wants to exempt small-scale miners selling gold to the central bank from excise and income taxes to help build the country’s thinning foreign exchange buffer.

BSP Deputy Governor Diwa Guinigundo said in a text message the central bank is now making representation to the Senate to support a similar bill approved by the House of Representatives on third and final reading.

Guinigundo said under House Bill 7133, efforts to strengthen the country’s gross international reserves (GIR) would include changes in certain sections of the National Internal Revenue Code (NIRC) exempting gold sales to the BSP from excise and income taxes.

Even with such exemption, Guinigundo explained the potential tax to be foregone is just a few tens of million pesos.

“In exchange, the BSP will be able to build up its foreign exchange reserves, enhance the income of small-scale miners and traders and in the process save the national government hundreds of millions of pesos that would have to be spent in terms of providing qualified poor families with conditional and unconditional cash transfers,” he added.

In 2008, the Bureau of Internal Revenue (BIR) issued Revenue Regulation 7-2008 covering taxation on sale to BSP of gold and other metallic mineral products extracted or produced by small-scale miners. Such regulation requires imposition of a two percent excise tax and five percent withholding tax on gold such miners produce and sell to BSP.

However, the BSP first asked the Department of Finance (DOF) in 2008 to reconsider the regulation that also assigned the BSP to not only collect the two percent excise tax on the sale of gold but, also as withholding agent for the 10 percent creditable withholding tax.

Guinigundo said the excise tax rate collected has doubled to four percent under Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law, while the creditable withholding tax is now one percent.

“The sale to BSP of gold by small scale miners and traders has declined significantly from the time the BIR mandated the central bank in June 2011 to collect excise and withholding taxes, on their behalf, from sale of gold to the BSP,” he said.

From average annual volume of almost one million troy ounce prior to the imposition of the excise tax and creditable withholding tax, gold sales to BSP declined to only 14.7 thousand troy oz. by 2017.

Though BSP has continued to transact gold sales from small-scale miners daily this year, the volume has remained extremely meager as volume fell 23 percent to 6.9 thousand troy oz in the first eight months of the year.

“With the decline in gold sales to the BSP following the imposition of said taxes, the amount of tax collection by the BSP has also steadily trended down, and worst, led to loss of opportunity for the BSP to build up its GIR using pesos,” Guinigundo said.

The country’s GIR level has thinned to $74.77 billion in October, enough to cover 6.8 months’ worth of imports, from a record $86.14 billion equivalent to 10 months’ worth of imports in September 2016.

The BSP uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.

Guinigundo said, the imposition of the excise and withholding taxes by the BSP has encouraged small-scale gold sellers to sell their goods to the informal market since the net price, after tax, is lower compared to that prevailing in the blackmarket.