Regional Focus

The future of small-scale gold mining in the Philippines 

Earlier this year the Philippine Government passed a new law exempting small-scale gold miners from excise and income taxes when selling to the country’s central bank - Bangko Sentral ng Pilipinas (BSP). Here, Scarlett Evans looks into the new law and its potential impact on both the Philippine economy and small-scale mining in the country.

The new measure - which also reaches gold transactions between small-scale miners and accredited traders - was signed into effect by Philippine President Rodrigo Duterte on March 29, in a move that is intended to boost the country’s domestic gold reserves and global economic standing, as well as prevent illicit trading of the precious metal - a practice that is currently widespread in the country.

Overall it is hoped that the measure will facilitate a more stable and profitable market for both traders and miners, but whether it is truly enough to encourage the country’s small-scale mining sector remains to be seen.

More than half of the country’s coal mines are managed by pro-Russian separatist militia.Credit: DmyTo/Shutterstock.

More than half of the country’s coal mines are managed by pro-Russian separatist militia.

Credit: DmyTo/Shutterstock.

Why introduce the law?

According to Elaine Calleja, BSP’s Deputy Director of Loans and Credit, “the law seeks ultimately to recoup the 99% drop in BSP’s domestic gold purchases owing to the imposition of taxes on said purchases beginning July 2011.”

The year that the 2% excise tax and 5% withholding tax were imposed on all gold sales to BSP (the only official gold buyer from local miners), purchases made through the bank fell to near-zero as miners opted for the more attractive prices offered on the black market. Between 2010 and 2019, overall purchases declined from more than 900,000fine troy ounces (FTO) to around 10,000FTO.

Looking forward, Bloomberg reports predict the new law could boost gold sales to BSP to almost one million FTO per year, building domestic gold purchases and stabilising the country’s gross international reserves (GIR), which have previously been dented by fluctuating prices on the international market. In 2018 the country’s GIR saw a steady decline, and fell to a seven-year low of $74.8bn in October.

“Between 2010 and 2019, overall purchases declined from more than 900,000FTO to around 10,000FTO.”

“The GIR improves the country’s credit worthiness and serves as a buffer against external economic and financial shocks,” says Calleja. “Gold, a valuable component of the GIR, allows asset diversification, accords economic security and yields additional income. It preserves the value of international reserves and hedges against inflation and volatilities in other foreign currency assets.”

Building gold reserves as a means of improving economic stability will add the Philippines to the likes of Russia, China and Serbia - who have turned to gold purchases as a means of diversifying resources.

While repealing the taxes means the Philippine Government is expected to lose 35 million pesos ($666,793) per year, the long-term economic benefits are thought to outweigh the losses.

“It is seen that the tradeoff in the forgone tax revenues to the government is far outweighed by Philippine’s greater monetary and external sector stability,” says Calleja, “as well as the social and economic welfare of small-scale miners and traders.”

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Smuggling in the Philippines

Calleja characterises smuggling in the country as ‘rampant’, saying a clear benefit of the new law would be an anticipated discouragement of the illicit activity. According to a 2012 Reuters report on the Philippine black market, up to 90% of small-scale gold production was being smuggled out of the country, with the majority finding its way to China.

“[The law] would allow marginalised small-scale miners and gold traders access to BSP’s purchase of gold at international market prices with fair weighing/valuation” says Calleja, “as opposed to the black market.”

“There’s not any additional danger for miners to sell on the black market, as there were never any security measures provided by the government in the first place.”

But according to Kevin Telmer, executive director of the Canada-based Artisanal Gold Council, smuggling never truly posed a significant threat to the miners themselves, and attempting to harness the black market is only the first step in truly helping to legitimise small-scale miners.

“There’s not any additional danger for miners to sell on the black market, as there were never any security measures provided by the government in the first place,” he says. “Even when there was an official government gold-buying body, miners would still have to go via the black market sector for certain activities, such as borrowing money.”

Instead, changing the framework in which small-scale miners work is crucial to help optimise the sector and support the thousands of people who work within it. Considering the fact that, according to the Reuters report, around 56% of gold produced by the Philippines in 2011 came from artisanal miners (ASM), it is a sector with a wealth of potential.

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Encouraging small-scale mining to grow

“Formalising the sector really means adding all of the business infrastructure to it - not just imposing a tax and then asking miners to follow the rules of law,” Telmer says. “The presence of governments in most ASM communities is almost zero. Asking them to pay tax without having any obvious reciprocal receipt of services was a questionable policy, but reversing it is a step in the right direction.”

While the sector is a long way from being fully formalised, repealing the taxes allows small-scale miners to begin rebuilding a formal relationship with the central bank in the trading and selling of their gold, and providing a space for a responsible gold mining industry to grow.

“Whether the government will provide all the needed assistance to develop this sector is a big question,” he adds. “But at least they’re open to having that happen. Providing a supply chain, and opportunity for gold miners to sell their gold legally - that is an important step.”

Legitimising artisanal miners is a slow, yet growing, global trend. While in previous years governments attempted to ignore or quash this informal sector, the increasingly common attitude is that it can provide a lucrative development opportunity. Indeed, according to Telmer it can in fact help countries achieve a large number of the UN’s Sustainable Development Goals, such as poverty, gender equality, and responsible consumption/production of minerals. In this way, the Philippines evidence a forward-thinking attitude in beginning to allow the sector to blossom.

“You have a lot of the developed world wishing, idealistically, that ASM could be replaced by things like small-scale agriculture” says Telmer, “but the reality is that ASM is the alternative livelihood for a huge number of rural poor people. That’s why they’re doing it. I think governments have all woken up and questioned why they are trying to squash a source of economic development for the poor. Why wouldn’t we try to embrace it, formalise it, and use it as a vehicle for development?”

AusProof is celebrating 25 years of business in Australia in 2019.

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