Government steps up gold purchases

Small - scale miners lured away from black market

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects gold purchases to increase further as it continues to implement reforms to lure small-scale miners and sellers away from the black market.

Joseph Norbert David, director of the BSP Mint and Refinery Operations Department, told participants in a media lecture series that the volume of gold purchases of the BSP this year has already surpassed last year’s level.

He reported that gold purchases by the central bank reached 115,800 troy ounces in 2020 or more than 11 times the 10,207 troy oz purchased in 2019.

From an average annual volume of almost one million troy oz, gold purchases by the BSP plunged steadily after the Bureau of Internal Revenue (BIR) issued Revenue Regulation 7-2008 in 2008 slapping taxes on the sale to the BSP of gold and other metallic mineral products extracted or produced by small-scale miners.

Such regulation requires the imposition of two percent excise tax and five percent withholding tax on gold sold to the BSP.

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 to act as a withholding agent for the 10 percent creditable withholding tax.

The BIR eventually issued RR 6-2012, slapping a five percent withholding tax and two percent excise tax on the gold purchases of the BSP from small-scale miners.

In 2017, President Duterte signed Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law, doubling the excise tax rate to four percent, while the creditable withholding tax was placed at one percent.

The imposition of the excise and withholding taxes encouraged small-scale gold miners and traders to sell their output to the black market since the price is higher.

In 2019, David said RA 11256 – An Act Strengthening the Philippines’ Gross International Reserves – exempted accredited small-scale miners and traders from paying income and excise tax for gold sold to the BSP.

“We could say that the exemption from taxes has a positive impact on our purchases. There is an increase in our gold purchases as a result of the lifting of taxes imposed on our sellers,” David said.

The Philippines managed to build up its gross international reserves to an all-time high of $110.12 billion last year. The GIR served as a buffer against external shocks such as the pandemic.

David also said the BSP has booked gains after shifting to an active trading stance for its gold holdings last year.

“Since we adopted an active stance in our trading, we have registered gains in our trading activities,” he said.

According to David, the BSP has programs in the pipeline including lowering the processing costs and minimizing the turnaround time to further increase purchases of gold and to discourage small-scale miners from selling their gold in the black market.

David said the BSP is looking at reducing the assaying and refining fees charged to small-scale miners to encourage them to sell their gold to the BSP.

He said the central bank continues to improve its gold buying rates and make its operations more efficient to discourage the sellers from going to the black market.

“We offer prices that are at par with international gold prices so our sellers will be ensured that they will not be shortchanged,” he said.

The BSP refines and converts all gold purchases into good delivery gold bars via its mint and refinery operations department, forming part of the country’s GIR.