Tax court orders BSP to pay BIR P2.3 billion in excise tax

MANILA, Philippines - The Court of Tax Appeals (CTA) has ordered the Bangko Sentral ng Pilipinas (BSP) to remit to the Bureau of Internal Revenue (BIR) P2.3 billion in excise tax due the government arising from the BSP’s purchase of gold.

In a 39-page decision dated Feb. 24 but made public only yesterday, CTA Associate Justice Olga Palanca-Enriquez sustained the earlier assessment of the tax agency. It thus ordered the country’s monetary authority to pay the BIR a total of P2 billion in excise taxes.

But the BSP and it would appeal the decision of the CTA as this would discourage small scale miners from selling their gold to the BSP.

BSP Governor Amando M. Tetangco Jr. said in a text message that the BSP would appeal the tax court’s order directing the central bank to pay excise tax for its gold purchases from 2001 to 2006.

“I haven’t seen the decision but we will appeal,” Tetangco stressed.

BSP Deputy Governor Diwa Guinigundo said the imposition of tax on gold purchased by BSP from small-scale miners would have a negative impact on the building up of the country’s gross international reserves (GIR).

“Imposition of this tax will have a negative effect on the building up of our international reserves since it will discourage the sale of gold to BSP,” Guinigundo warned.

According to the CTA, the amount represents basic excise tax due on the gold which the BSP purchased from small-scale miners from 2001 to 2006. The BSP buys gold for its gross international reserves (GIR), mainly for asset diversification so that its holdings are not all cash purchases. The country’s dollar reserves consist of BSP’s gross foreign currency holdings, gold reserves, special drawing rights from multilateral institutions and foreign investments. It is an indicator of the country’s ability to service the economy’s need for foreign currencies such as import payments.

BIR Deputy Commissioner for Legal and Enforcement Gregorio Cabantac lauded the court’s decision, adding that the BIR will move for the immediate collection of the amount. However, the BIR will also file a motion for reconsideration before the CTA because the tax agency’s decision to impose surcharges and interest on the excise taxes was denied by the court.

“The validity of the BIR assessment was upheld by the CTA. While the deficiency excise tax assessed was sustained, the imposition of surcharges and interest was denied. We are now preparing the motion for reconsideration,” Cabantac said.

The case stemmed from an assessment notice issued by the BIR against BSP on Dec. 20, 2007. The BIR sought from the BSP a total of P4.6 billion in tax deficiency, including surcharges and interest. 

The BSP, for its part, submitted to the BIR a protest letter on Jan. 18, 2008 calling for a cancellation of the BIR ruling, citing Administrative Order No. 34, issued by the Department of Environment and Natural Resources (DENR). The order provides excise tax exemption on gold sold to the BSP.

But this motion was denied by the BIR on April 2, 2008, prompting the BSP to bring the case before the CTA to seek a reversal of the BIR decision.

Under the National Internal Revenue Code (NIRC), gold extract, as metallic mineral, is subject to a two percent excise tax. This is supported by Republic Act No. 7076 or the “People’s Small Scale Mining Act of 1991.”

“Notwithstanding DENR DAO 34… pursuant to RA 7076 and the NIRC of 1997, we rule that gold locally extracted, manufactured, or produced by small-scale miners, to whomever were sold, are subject to excise tax,” the court ruled in its decision.

The BIR is under pressure to collect taxes given the government’s widening budget deficit. It is tasked to collect P830 billion this year from an original revenue goal of P875 billion.              – With Lawrence Agcaoili