Republic of the Philippines
HOUSE OF REPRESENTATIVES.
Constitution Hills, Quezon City

SEVENTEENTH CONGRESS
Second Regular Session

HOUSE BILL NO. 7133

Introduced by
Representatives Pantaleon D. Alvarez, Rodolfo C. Farifias and Dakila
Carlo E. Cua

AN ACT TO STRENGTHEN THE COUNTRY’S GROSS
INTERNATIONAL RESERVES (GIR), AMENDING FOR THE
PURPOSE SECTIONS 32 AND 151 OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES

EXPLANATORY NOTE

Section 17 of R.A. No. 7076, or the People’s Small-scale Mining Act
of 1991, provides that “all gold produced by small-scale miners in any
mineral area shall be sold to the Central Bank, or its duly authorized
representatives, which shall buy it at prices comparative with those
prevailing in the world market regardless of volume or weight.”

R.A. No. 7076 was enacted to help promote, develop, protect and
rationalize viable small-scale mining activities in order to generate more
employment opportunities and provide an equitable sharing of the
nation’s wealth and natural resources in the Philippines. The above-
quoted provision, in particular, seeks to ensure that small-scale miners
would be able to receive a fair price for their gold.

Another key benefit of R.A. No. 7076 is that it enables the Bangko
Sentral ng Pilipinas (BSP) to build up the country’s gross international
n

Page 1 of 4
Ina 2/5/2018


reserves (GIR) by buying domestically produced gold from small-scale
miners using pesos.

Beginning 11 July 2011, the BSP started to withhold and remit to
the National Government 2% excise tax and 5% creditable withholding,
tax (CWT) on its purchase of gold from small-scale miners and traders.
As a result, the volume of gold sold to BSP declined drastically.
Compared to BSP’s total gold purchases in 2010 of 918,110 troy ounces,
purchases decreased by 98% to 20,354 troy ounces in 2014. In terms of
value, from the 2010 figure of P49,543 million, BSP only purchased P984
million worth of gold in 2014.' Evidently, small-scale miners and traders
had opted to sell their gold elsewhere rather than to the BSP.

The taxation of the sale of gold to BSP affects the lives of many
Filipinos. Small-scale mining makes up about 75% of total gold mining
production.? It is estimated that 500,000° small-scale gold miners in the
Philippines operate in 30 out of the 80 provinces.* An estimated 75% of
the miners in the country are engaged in subsistence mining, 15% are
small individual or family businesses and the remaining 10% are
established commercial mining firms.5

The estimate average annual income of a small-scale miner
amounts to P64,942 or around P250 per day. This amount is less than the
current average minimum wage outside of National Capital Region at
P287 per day, which is exempted from income tax. However, as a result
of the taxation of gold sold to BSP, traders who still sell gold to the BSP
pass on the taxes to the small-scale miners who are already engaged in
subsistence mining. Moreover, selling elsewhere may not fetch the

* Based on data provided by the Regional Monetary Affairs Sub-Sector (RMASS). Translated in terms
of gold bars, from a total of 2,237.12 equivalent gold bars in 2010, only 43.89 gold bars were sold to
BSP in 2014

2 Mining Industry Statistics, Mining and Geosciences Bureau, DENR (2010)

3 Largest measurable estimate based on Daniel, A. and Keevil, N.; “Big Issues in Smalll Mining:
Mercury, Cyanide and the Technical Case for Recognition of Small Mining in the Philippines;” Liu
Research Institute for Global Issues, University of British Columbia - Philippine Studies Series, 28
February 2013.

4 Mendoza, H.D,; “Eco-Friendly Recovery of Gold and Copper for Small-Scale Mining Industry;
Department of Mining, Metallurgical, and Materials Engineering, University of the Philippines; 27
June 2014

5 A Background Study on the small-scale gold mining operations in Benguet and South Cotabato and
their impact on the economy, the environment and the community by the Alternate Forum for
Resear¢h in Mindanao (2012).

n Page 2 of 4
Ina 252018


international market prices at which the BSP buys gold. Therefore,
taxation of the sale of gold to BSP may further marginalize those already
engaged in subsistence mining.

As for the BSP, it has, for practical purposes, lost the opportunity
to build up its gold reserves using pesos. Buying gold from the domestic
market results in a rise in the GIR, unlike buying using foreign currency,
which simply alters the composition of the GIR. Meanwhile, purchasing
gold using dollars acquired from the market affects the money supply.
To keep money supply manageable and maintain growth would entail
additional cost for the BSP. Moreover, the BSP buys gold as part of its
international reserves as gold still represents the ultimate form of
payment in the world. Central banks have long held on to gold as part of
their international reserves for the following reasons: (1) Asset
diversification - “Do not keep your eggs in one basket” to protect the
value of total reserve portfolio; (2) Economic security - gold value is less
volatile as compared to the value of currencies; and (3) Physical security
- gold maintains an intrinsic value and is less susceptible to foreign
exchange controls. Finally, the BSP’s gold refinery facility is currently
operating at below capacity. With the contraction in the volume of gold
to the BSP, it may have to raise gold refining charges, which would
further discourage small-scale miners and their traders from selling to
the BSP.

As regards actual NG collections, while BSP remitted the
significant amount of P205 million in taxes for the period of July to
December 2011, its remittances for the same period in 2013 went down
by 82% to a mere P36 million, and has since plateaued at this amount.

Indubitably, the dwindling tax collections of the National
Government from the sale of gold to BSP should not take precedence
over the undue burden that the tax collection has caused to BSP and the
small-scale miners.

The proposed legislation would have the effect of assisting the BSP
in the fulfillment of its mandate under its charter, returning to the
formal sector the sale of gold from small-scale mining and supporting
the trade of small-scale miners as originally envisioned under R.A. No.

“a

Page 3 of 4
Ina 2572018


7076. In view of the foregoing, immediate approval of this bill into law is
earnestly sought.

eee
PANTALEON D. AREZ RODOLEO. C. FARINAS

DAKI RLO E. CUA

Page 4 of 4
Ina 2/5/2018


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Constitution Hills, Quezon City

SEVENTEENTH CONGRESS
Second Regular Session

HOUSE BILL No. 7138

Introduced by
Representatives Pantaleon D. Alvarez, Rodolfo C. Farifias and Dakila
Carlo E. Cua

AN ACT TO STRENGTHEN THE COUNTRY’S GROSS
INTERNATIONAL RESERVES (GIR), AMENDING FOR THE
PURPOSE SECTIONS 32 AND 151 OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Amendment of Section 32 of the National Internal Revenue Code -
Section 32(B)(7) of the National Internal Revenue Code of 1997, as amended, is
hereby further amended to read as follows:

SECTION 32. Gross Income. —
Xxx
(B) Exclusions from Gross Income. — The following items shall not be
included in gross income and shall be exempt from taxation under this Title:
Xxx
(7) Miscellaneous Items. —
Xxx
() INCOME DERIVED FROM THE SALE OF GOLD PURSUANT TO
REPUBLIC ACT (R.A.) NO. 7076 - INCOME DERIVED FROM THE
FOLLOWING TRANSACTIONS PURSUANT TO RA. NO. 7076,
OTHERWISE KNOWN AS THE PEOPLE'S SMALL-SCALE MINING ACT
OF 1991:

Page 1 of 3
Ina 522018


1) THE SALE OF GOLD TO THE BANGKO SENTRAL NG PILIPINAS
BY REGISTERED SMALL-SCALE MINERS, AS DEFINED UNDER
R.A. 7076, AND ACCREDITED TRADERS; AND

2) THE SALE OF GOLD BY REGISTERED SMALLSCALE MINERS TO
ACCREDITED TRADERS FOR EVENTUAL SALE TO THE BANGKO-
SENTRAL NG PILIPINAS.

SECTION 2. Amendment of Section 151 of the National Internal Revenue Code -
Section 151 of the National Internal Revenue Code of 1997, as amended, is hereby
further amended to read as follows:

SECTION 151. Mineral Products. —
Xxx

(© NOTWITHSTANDING THE FOREGOING, GOLD WHICH IS SOLD, OR
EVENTUALLY SOLD, TO THE BANGKO SENTRAL NG PILIPINAS, IN
ACCORDANCE WITH SECTION 32(B)(7)(i), SHALL BE EXEMPT FROM
THE PAYMENT OF EXCISE TAX: PROVIDED, HOWEVER, THAT IF
EXCISE TAX DUE THEREON HAD BEEN PAID PRIOR TO THE SALE OF
GOLD TO THE BANGKO SENTRAL NG PILIPINAS, THE TAXPAYER MAY
FILE A CLAIM FOR REFUND OR CREDIT WITH THE COMMISSIONER
FOR THE EXCISE TAX PAID.”

SECTION 3. Tax Incentives and Privileges of Small-Scale Miners. - In addition to
the foregoing, and notwithstanding the existing provisions of Republic Act (R.A.)
No. 6938, as amended, and other applicable laws, the sale of gold by registered
small-scale miners, as defined under R.A. No. 7076, to accredited traders for
eventual sale to the Bangko Sentral ng Pilipinas shall enjoy the same tax treatment
and privileges given to the direct sale of gold to the Bangko Sentral ng Pilipinas
under the Tax Code.

SECTION 4. Presumption on the Source of Gold. - All gold sold to the Bangko
Sentral ng Pilipinas by accredited traders shall be presumed to have been purchased
by said traders from small-scale miners.

SECTION 5. Implementing Rules and Regulations. - Within sixty (60) days after
the effectivity of this Act, the Governor of the Bangko Sentral ng Pilipinas, the
Secretary of Environment and Natural Resources, the Secretary of Interior and Local
Government and the Commissioner of Internal Revenue shall recommend to the
Secretary of Finance, for promulgation, the necessary rules and regulations
necessary for the effective implementation of this Act. The rules and regulations
shall include provisions for the registration and accreditation requirements of small-
scale miners and traders in order to avail of the tax exemptions under this Act.

Page 2 of 3
Ina 522018


SECTION 6. Repealing Clause. - All laws, executive/administrative orders, rules,
regulations and other issuances or parts thereof, which are inconsistent with the
provisions of this Act, are hereby revoked, repealed or modified accordingly.

SECTION 7. Separability Clause. - Should any provision herein be declared
unconstitutional, the same shall not affect the validity of the other provisions of this
Act.

SECTION 8. Effectivity. - This law shall take effect fifteen (15) days after its
publication in the Official Gazette or in a newspaper of general circulation.

Approved,

Page 3 of 3
Ina 5272018