Keep tax on gold

Lawmakers calling for the scrapping of the tax on gold are barking up the wrong tree. Just because small-scale gold miners or the traders who buy their output do not pay the tax, the government should simply scrap the impost and the problem gets solved?

At least four lawmakers last week urged the Bureau of Internal Revenue to scrap, or suspend, the tax on gold sales after reports that the volume of the precious metal sold by small-scale miners to the Bangko Sentral ng Pilipinas fell drastically to 17,389 kilos in 2011 from 25,232 kilos in 2010 when production should have increased as prices rose.

The culprit, according to the lawmakers, is the 7-percent tax on all gold sales to the BSP. The Department of Environment and Natural Resources had noted that the decline in the BSP’s gold purchases began in the second half of 2011 when the BIR imposed a 2-percent excise tax and a 10-percent creditable withholding tax (CWT) on gold sold by small-scale miners and traders. Effective April this year, the CWT was halved to 5 percent. The tax payments are deducted at the BSP’s five buying stations in the cities of Baguio, Davao, Zamboanga, Naga and Quezon, and later remitted to the BIR.

Cagayan de Oro Rep. Rufus Rodriguez has called on Internal Revenue Commissioner Kim Henares to immediately scrap the tax, while Sen. Gregorio Honasan suggested that it be suspended until the BIR has plugged all the loopholes in the system. “The gold tax is a glaring case of bad taxation. It is doing more harm than good because it is a big flop in raising government revenue and it is hurting our financial stability,” Rodriguez claimed. Honasan, a member of the Senate ways and means committee, said: “I don’t think we should continue with something that is clearly not working as expected. I agree that gold should be taxed, but I don’t think it should be done this way.”

The law requires small-scale miners to sell all their gold to the central bank. What does the substantial drop in the BSP’s gold purchases from them indicate but smuggling?

“Obviously, smuggling accounts for the low gold inventory [of the BSP],” Isabela Rep. Giorgidi Aggabao, vice chair of the House ways and means committee, said, adding: “But the trouble with lifting the tax is it will benefit equally the big-time gold mining companies.” He also said that while he believed that the tax should stay, the solution was stricter oversight, especially on small-scale mining activities.

The most plausible proof of the smuggling is the reports citing Hong Kong data showing that Philippine gold shipments to the territory averaged 81,000 kilos in 2010 and 2011. On the other hand, data from the Philippines’ National Statistics Office showed legal gold exports to Hong Kong in 2010 and 2011 at just about 3 percent of the total volume recorded by Hong Kong authorities.

It’s quite clear that the problem is smuggling, not the tax on gold sales. We agree with the BIR chief’s position that the argument that the tax is pushing small-scale miners to sell gold to buyers outside the country is not sufficient reason for the government to stop collecting taxes. What is needed is strict enforcement of the law so that small-scale miners will stop turning to smugglers who take the gold out of the country, Henares correctly pointed out.

“Small-scale miners should sell gold to the BSP because it is what the law states,” the BIR chief said. “If they don’t do so, then they commit a violation. The Bureau of Customs should require gold exporters, particularly small-scale ones, to show documentary proof that the gold they are trying to bring out of the country was bought from the BSP. It must stop any shipment of gold that has no certification from the BSP and hold the exporters for questioning.”

Indeed, it is the obligation of small-scale miners to pay taxes just like everyone else. A mechanism should be drawn up to ensure that the tax is imposed on as much gold as possible, and to guarantee compliance with the law requiring all small-scale miners to sell their gold to the BSP. A joint effort among the BSP, the BIR, local government units, the DENR, the customs bureau, and even the Philippine National Police is in order.

President Aquino recently issued an executive order on mining that aims to regulate small-scale mining by limiting it to especially designated zones where the government plans to build ore-processing facilities. Efforts should also be rushed in this direction.