Publishing Questions and Answers on Taxation Relative to the Establishment and Operation of the Security Printing Plant (SPP) and the Mint and Gold Refinery (MGR) of the Central Bank

December 14, 1988 REVENUE MEMORANDUM CIRCULAR NO. 59-88 SUBJECT : Publishing Questions and Answers on Taxation Relative to the Establishment and Operation of the Security Printing Plant (SPP) and the Mint and Gold Refinery (MGR) of the Central Bank TO : All Revenue Officers and Others Concerned The following are the questions and answers relative to the establishment of the operation of the CB Security Printing Plant and the Mint and Gold Refinery; Question 1 : State the legal provisions that serve as bases in the establishment of the CB SPP-MGR. Answer : Under Section 1 of Presidential Decree 484, as amended by Presidential Decree 783, the Central Bank of the Philippines is authorized to operate a Security Printing Plant for the printing of banknotes, as well as to undertake such other security printing work as the facilities of the plant would permit, as well as to establish and operate a Gold Refinery and a Mint. aisa dc Question 2 : What is the tax treatment of the operation of the two offices? Answer : Under Section I-A of PD 484 as amended by PD 783, the Central Bank shall be exempt from all forms of taxation and from duties and all other imposts on machineries, equipment, raw materials and supplies that it may import. Question 3 : In the light of Executive Order No. 93, are the tax exemption privileges granted to CB under PD 484, as amended, still effective? Answer : Since E.O. No. 93 has withdrawn all tax and duty incentives granted to private and government entities, the tax exemption privileges granted to operations of the SPP and MGR are rendered ineffective. Question 4 : Who are the present clients of the CB-SPP? Answers : The CB-SPP renders services to and charges printing fees from the banking community for the printing of MICR checks and from various government agencies for the printing of non-check security documents. Question 5 : Are the printing charges subject to VAT? Answer : Pursuant to Section 99 of the Tax Code, as amended by EO 273, the printing activity can be classified as a service rendered by a person liable to VAT, thus, the printing charges are subject to the 10% VAT (VAT Ruling No. 379-88.) Question 6 : How does the CB operate its MGR? Answer : In order to boost international reserves which consist of gold and other assets denominated in foreign currency, the Central Bank purchases gold and silver from local sources. The said materials are then refined for the Central Bank's account by MGR which decides on the refining schedule and purity and form of the refined products as dictated by its use which is primarily for international reserves. Unlike foreign refineries which are most privately owned, the MGR does not perform tolling services wherein raw gold bullion is refined for a fee and subsequently returned to the owner. acd Question 7 : What is the nature and tax treatment of the refining fees? Answer : The pre-determined refining cost or fee is basically an accounting entry for internal control purposes i.e. the amount, instead of being directly paid by the seller of raw gold, is charged against the total value of the material as billed by CB which in turn charges the said amount against the annual budget. Since the refining fee is for the account of the Central Bank, the refining process does not partake the nature of a taxable service; hence it is not subject to VAT. Question 8 : What are the taxes applicable to the local suppliers of gold and silver to CB? Answer : 1. On the basis of the determined value of each of the metal contents of a. raw gold/silver bullion from primary producers with average assay of 53% gold and 30% silver; b. silver dore from the Philippine Associated and Refining Corporation (PASAR) with average assay of 25% gold and 75% silver; c. Gold and silver from traders and panners with gold assay ranging from 75% to 99% (in the case of panned gold) and silver assay ranging from 75% to 99% (in the case of silver) the purchase of gold is considered an export sale pursuant to E.O. 581 and Section 169 of CB Circular No. 960 is exempt from VAT. However, if such sale is made by a VAT registered firm, it is subject to zero-rate (Section 100 (a) (1) of the Tax Code as amended by EO 273). On the other hand, the purchase of silver is not considered an export sale and is therefore subject to 10% VAT which the Central Bank can claim as an input tax against its zero-rated VAT (in case silver is exported or sold to a BOI-registered entity exporting at least 70% of its output) or its 10% VAT (in case silver is sold domestically). For invoicing purposes, the seller shall segregate in its VAT invoice the sale of gold from the sale of silver. 2. On the basis of the actual market value of the annual gross output, the sale of gold/silver bullion and silver dore is subject to 5% excise tax (Section 151(a)(3) of the Tax Code, as amended by E.O. 273.) Question 9 : What is the tax treatment of gold panners/traders who operate as small scale mining enterprises and are not VAT registered? Answer : The sale of gold by non-VAT registered gold panners/traders to Central Bank is considered an export sale and is exempt from VAT pursuant to EO 581. However, if the panner/trader is VAT registered the sale is zero-rated in addition to the 5% excise tax on the production of gold under Section 151 of the Tax Code, as amended. Question 10 : What is the tax treatment of the sale of refined gold and silver by CB? Answer : The sale of gold grains to local jewellers and industrial users is subject to 10% VAT; however; if such output is sold as raw material to a BOI-registered export-product, the sale shall be subject to zero rate subject to the conditions under Section 2 of RR 2-88. Moreover, its export of refined silver (silver bars) is subject to 0%. (SGD.) EUFRACIO D. SANTOS Deputy Commissioner