BSP Governor Benjamin Diokno said in a text message to reporters that the new tax code would allow the central bank to increase its purchases of domestic gold to further build up the country’s gross international reserves (GIR).
Geremy Pintolo
BSP to buy more gold from small miners
Lawrence Agcaoili (The Philippine Star) - May 23, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may further build up its foreign exchange reserves after President Duterte signed a law exempting small-scale miners from paying income and excise taxes when they sell their gold to the central bank.

BSP Governor Benjamin Diokno said in a text message to reporters that the new tax code would allow the central bank to increase its purchases of domestic gold to further build up the country’s gross international reserves (GIR).

“Higher GIR would lead to improving the country’s economic standing and lowering the costs of borrowing by the government as well as the private sector,” Diokno said.

Latest data from the BSP showed the country’s GIR level stood at a 30-month high of $83.95 billion as of end-April, equivalent to 7.4 months’ worth of imports of goods and five time the country’s short-term external debt.

The GIR serves as buffer to ensure that the Philippines would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.

President Duterte signed Republic Act 11256 or An Act to Strengthen the Country’s Gross International Reserves (GIR) last March 29, exempting from excise and income tax the sale to the BSP of gold sourced from small-scale mining activities.

The measure also covers the sale of gold by small-scale miners to accredited traders for the eventual disposal to the central bank.

As a result of the taxation of the sale of gold by small miners to the BSP last July 2011, Diokno said domestic gold purchases plunged by 99 percent to 10,000 fine troy ounces in 2019 from more than 900,000 fine troy ounces in 2010.

BSP Deputy Governor Diwa Guinigundo said the new law is positive for the government because it is foregoing only less than P30 million in annual collection because of very little gold subjected to a very high tax regime.

“Our gold miners will have higher purchasing power so the government stands to gain from the value added taxes on goods consumed by them. Less of the poor gold miners would sink into the income category that the government will have to subsidize through the conditional and non conditional cash transfer,” Guinigundo said.

Guinigundo said the BSP worked hard for the last few years and its passage is a strong symbol that the government values the welfare of small scale gold miners who are forced to settle for lower prices for their gold in the black market.

“With the tax, they get even lower return for their gold. It is a win situation for them, it’s also a win situation for the BSP which can continue buying gold with peso so that there is additionality in the foreign exchange reserves. If we use dollars to buy gold from the world market, it would simply involve a rebalance of the foreign exchange reserve composition from dollar to gold,” Guinigundo said.

Guinigundo said the build up of the country’s foreign exchange buffer would be a plus factor to the country’s march toward the much-coveted A rating from debt watchers.

S&P Global Ratings and Japan Credit Rating Agency (JCR) rate the country’s sovereign debt at BBB+ or a notches above minimum investment grade or a notch below the much-coveted A scale.

“With higher and sustained and comfortable import and short term debt coverage, we can be favorably considered both by the market and the credit rating agencies. That should translate into lower borrowing costs for both the government and the corporates,” Guinigundo said.

Aside from helping build up the foreign reserves of the country, the BSP said the new law is expected to also lead to greater availability of gold in the domestic markets for jewelry making, dental requirements as well as other industrial and commercial uses.  – With Cristina Mendez

BANGKO SENTRAL NG PILIPINAS BENJAMIN DIOKNO
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