Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

16" CONGRESS
Second Regular Session

nouse pitt No,_5496

Introduced by REP. EVELINA G. ESCUDERO.

EXPLANATORY NOTE

Section 17 of R.A. No. 7076 (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.”

RA 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 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 $% 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 249,543 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.7It is estimated that

'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.


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.

‘The estimate average annual income of a small-scale miner amounts to 264,942 or
around #250 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 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 P20S
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.

*Mining Industry Statistics, Mining and Geosciences Bureau, DENR (2010).

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

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

5A 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 Altemate Forum for Research in
Mindanao (2012).


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. 7076.

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

EVELINA G. ESCUDERO


Republic of the Philippines
HOUSE OF REPRESENTATIVES
‘Quezon City

16™ CONGRESS
Second Regular Session

HOUSE BILL NO. 5496

Introduced by REP. EVELINA G. ESCUDERO

AN ACT
PROMOTING SMALL SCALE MINING BY EXEMPTING FROM THE PAYMENT
OF INCOME AND EXCISE TAXES THE SALE OF GOLD PURSUANT TO
REPUBLIC ACT NO. 7076, OTHERWISE KNOWN AS THE PEOPLE’S SMALL-
SCALE MINING ACT, 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 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 R.A. NO. 7076,
OTHERWISE KNOWN AS THE PEOPLE'S SMALL-SCALE MINING
ACT OF 1991:
1) THE SALE OF GOLD TO THE BANGKO SENTRAL NG
PILIPINAS BY REGISTERED SMALI ‘ALE MINERS, AS
DEFINED UNDER R.A. 7076, AND ACCREDITED TRADERS;
AND



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

SEC. 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

(C) 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 EXC ‘AX 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.”

SEC. 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.

SEC. 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.

SEC. 5. Implementing Rules and Regulations. ~ Within sixty (60) days after the
fectivity 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
acereditation requirements of small-scale miners and traders in order to avail of the tax
exemptions under this Act.

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.

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

SEC. 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,