The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Gold holdings are important as it is one of the components of gross international reserves (GIR), the money spent by a country’s central bank to sustain importation expenses and pay maturing debts.
In the Philippines, the importance of gold holdings is being neglected, thanks to the irritant two percent excise tax and five percent withholding tax imposed by the Bureau of Internal Revenue (BIR) to small gold sellers to the central bank.
As early as late 2013, the gold holdings of BSP were already dwindling as it was reduced by 94 percent from 17,638 kilograms to a mere 1,090 kilograms in 2012. No new data has been released but as the taxes remain, there is no expected rise in gold holdings.
When it comes to monetary value, worth of gold bought in 2012 amounted only to P2.304 billion, down 93 percent from P34.665 billion in 2011.
A gold holding is the gold held by a national central bank, intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, or to secure a currency.
It has been estimated that all the gold mined by the end of 2011 totaled 171,300 tons. At a price of $1,500 per troy ounce, reached on April 12, 2013, one tonne of gold has a value of approximately $48.2 million.
The total value of all gold ever mined would exceed $8.2 trillion at that valuation. Gold holding is very important as even the mighty United States and Germany assure that it has biggest portion in their dollar reserves at 74 percent and 68.7 percent, respectively.
Other than gold, components of GIR include special drawing rights, reserve position at the International Monetary Fund (IMF) and remittances.
Internal Revenue Commissioner Kim Jacinto-Henares has been asked several times if she has plans to remove the total seven percent tax against gold sellers but the official is consistent in saying “no.” “A tax is a people’s responsibility,” the commissioner said in an earlier interview.
Latest data for end-April 2015 released by the Bangko Sentral ng Pilipinas (BSP) showed the GIR growing a bit to $80.8 billion from $80.5 billion from a month ago level. The BSP said that revaluation adjustments on gold holdings are still an issue for the dollar reserves.
Compared to some years ago when taxes against gold sellers weren’t yet imposed, the GIR level was hitting $84 billion-plus. “Our gold purchase is now in trickles,” BSP Deputy Governor for the Monetary Stability Sector Diwa Guinigundo said earlier.
The official doesn’t want to become confrontational with the BIR despite of the severe drop in gold purchase. “The BSP has no power to tax,” the deputy governor added. BIR’s irritant seven-percent tax against gold sellers has resulted to over 90 percent drop in gold purchase of the central bank.
The assistant governor then of the BSP, Manuel Torres, affirmed that gold bought by BSP now is so miniscule compared to previous years. “Those who use to sell to us are now probably selling to Chinese smugglers,” Torres said in a text message from the US.
“BIR’s excise and withholding tax against gold sellers at the BSP continues to plague gold purchase of the central bank,” Torres added.
Even the Mines and Geosciences Bureau (MGB) confirmed that gold sellers asking permission to sell at the central bank have lessened dramatically. Because gold purchase of the BSP is so low, the taxes the BIR aims to get is also up in the air.
“It’s only in the air because gold are now captured by Chinese smugglers and brought outside the country using ports that are not thoroughly guarded,” said a source who requested not to be named.
“Since gold buying is almost nil, taxes are also nil,” the BSP official added. Torres said based on discussions with many gold sellers, they are willing to sell gold again to the BSP if the two percent tax will be removed.
“I can vouch for their sincerity,” he said. However, the promise remains a promise as the tax is still imposed and only expected to be removed once Henares is no longer the BIR commissioner beginning July 1, 2016.
Renato Diaz, an investment banker, said the Philippines is like allowing a goose that lays golden eggs to slip, literally. “It means we allow them (gold sellers) to sell their hard earned produce to the black market,” he said.
He added that there are laws that are destructive and this one is an example of those destructive laws. During the term of former President Gloria Arroyo, the former president didn’t order her six BIR chiefs to impose the law.
“She knows the effects, and we’re experiencing it now,” said Diaz, former congressman of Nueva Ecija’s first district from 1992 to 1998.