Golden opportunity?
TOP OF MIND - Erwin D. Legaspi (The Philippine Star) - July 9, 2013 - 12:00am

Precious metals such as gold are popular worldwide. The discovery of gold dates back to as early as 3600 BC by the Egyptians, but it was the Mesopotamians who are believed to have first used this metal as jewelry and ornaments. Today, in our country, there is really no official market for this type of precious metal. In fact, with the gold market being a so-called “informal market” with limited government supervision, almost anyone can buy gold through newspaper advertisements on gold auctions conducted regularly in different hotels within the country.

The Bangko Sentral ng Pilipinas (BSP) is the number one gold buyer in the Philippines. Its gold purchases help strengthen the country’s international reserves.  This is one of the reasons why the government enacted Republic Act (RA) No. 7076 (People’s Small Scale Mining Act of 1991) which requires all gold produced by small-scale miners in any mineral area to be sold to the BSP, or its duly authorized representative, which would buy it at prices competitive with those prevailing in the world market regardless of volume or weight. Small scale gold mines account for about two-thirds of our country’s total gold output and the BSP’s main source of its gold reserves amounting to approximately $10 billion. Based on RA No. 7076, this is the only means for the government to supervise gold buying, trading, and investing.

On April 2, 2012, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 6-2012 (Taxation on the Sale of Gold and Other Metallic Minerals to BSP). This RR requires all buyers of metallic minerals, including the BSP, to withhold excise tax at the rate of two percent and income tax at the rate of five percent.  The intention of this RR is to collect the appropriate taxes in advance.  The downside, however, is that when this RR was issued to effect the withholding of taxes, the sale of gold to BSP in 2012 significantly decreased from a yearly average of 30 tons of gold to only five tons of gold and the said gold sold were mostly from large-scale mining firms.  We could say that it is only a coincidence or maybe not.  The question now is, where are majority of gold being sold?  Probably, in the market wherein tax enforcement is weak, if there is any at all. 

The BIR observed that transactions involving gold are for cash to foreign individuals or foreign entities. The resulting effect of this type of transaction is that by the time the BIR becomes aware of it, if at all, it might be a little too late. Oftentimes, the foreign buyers have already left the country after the sale transaction leaving the BIR with no available means to track down the same and determine if the appropriate taxes have been paid.  Since the BIR cannot trace the sale transaction, there is a big possibility that the sellers of gold will be tempted not to declare the sale transaction and will not pay the corresponding taxes.  

With the prevalent occurrence of these type of problems, the BIR had instituted a way to minimize, if not eliminate, the non-payment of tax. The solution it came up with is the issuance of RR No. 5-2013 (Tax Treatment of Sale of Jewelry, Gold and other Metallic Minerals to Non-resident Foreign Individuals or Firms). RR No. 5-2013 requires every seller of gold, jewelry, and other precious metals to pay the appropriate business tax, income tax and excise tax in advance to Revenue Collection Officer (RCO) of the Regional District Office (RDO) having jurisdiction over the place where the sale transaction occurs. This advance payment of tax will later on be credited to the actual tax liability of the seller. The said RR requires the buyers and even owners/operators of the hotels, inns, and establishments to advise the RDO in writing immediately after having acquired knowledge of the buying event in their premises.  Otherwise, said owner/operators will be subjected to appropriate penalties of fine of not more than P1,000 or imprisonment of not more than six months or both under Section 275 of the National Internal Revenue Code.

The issuance of RR No. 5-2013 aims to minimize the non-payment of taxes on sale transactions involving gold This RR cured the situation wherein the non-resident foreign individuals or corporations could avoid the tax collections of the BIR by simply leaving the country unnoticed.  This is a golden opportunity for the government to collect taxes but the cooperation of the gold buyers/sellers is very crucial.

Erwin D. Legaspi is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email or

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