Clarifying withholding tax on minerals
Clarifying withholding tax on minerals by: Charity P. Mandap
A major focus of the Bureau of Internal Revenue (BIR) is mining, an industry that is viewed as a good revenue source as it is subject to excise, value-added and income taxes.
Relative to this, the BIR has clarified the taxability of the sale of gold in its recent Revenue Regulations (RR) No. 6-2012 issued on April 2, 2012.
The regulations amend RR No. 7-2008 on the Taxation on the Sale to BSP of Gold and Other Metallic Mineral Products Extracted or Produced by Small-Scale Miners, and Further Amending Section 2.57 2(T) of RR No. 2-98, as amended.
A significant amendment is the expanded scope of the regulations. RR 7-2008 covers only transactions between small-scale miners and the Bangko Sentral ng Pilipinas (BSP). With the changes in place, RR 6-2012 now uses the words “sellers” instead of small-scale miners and “buyers” instead of only the BSP. RR No. 7-2008 contains no reference to large-scale mining or other entities. In fact, it specifically implements Republic Act (RA) No. 7076 or the People’s Small-Scale Mining Act of 1991. It provides a detailed background, definition and qualification of small-scale mining, giving the impression that he regulation is applicable only to small-scale mining. If the intent is to cover large-scale mining, RR 7-2008 could have easily incorporated the same. Thus, under the basic rule on statutory construction known as expressio unius est esclusio alterius, or in layman’s terms simply means “what is not included is deemed excluded,” RR No. 7-2008 is applicable only to small-scale mining.
Meanwhile, RR 6-2012 now provides for the applicability of VAT on the sale of gold. Where RR No. 7-2008 merely provides for the zero percent VAT on the sale of gold to the BSP, the new regulations reiterate the applicability of the 12% VAT on the sale of metallic minerals to persons and entities in general. The general term “persons and entities” could only mean persons and entities other than BSP. Thus, the new issuance covers sale of minerals to persons and entities other than the BSP.
The inclusion of large-scale mining in the coverage of the regulations attains relevance in the withholding of the 10% tax by a buyer on income payments for purchases of minerals, mineral products and quarry resources under Section 2.57.2 (T) of RR No. 2-98. Considering that RR No. 7-2008 overs only small-mining, the 10% withholding tax required under the same regulations should be construed to apply only to transactions involving small-scale miners.
In spite of this, the BIR in some cases maintains that the 10% withholding tax should also be applicable to transactions involving large-scale miners. With the BIR’s interpretation, buyers who withheld only the 1% tax on income payment to large-scale miners (as prescribed by an earlier regulation, RR No. 17-2003) have been made liable to withholding tax deficiency on the 9% difference. As a consequence, buyers of minerals, on whom the responsibility to withhold is placed, are being exposed to penalties for failure to withhold the correct taxes.
The intent of the BIR to cover transactions involving large-scale mining under RR 12-2008 could have been explained in a public hearing on the regulations during the drafting stage. Unfortunately, no such event took place. As a public hearing is required to validate the regulations, can the BIR implement the changes or raise tax rates in a regulation that was issued without due notice and hearing?
Under RR 8-2012, the controversial withholding tax has been reduced to 5% (from 10%, or up from 1%) which now applies on all transactions whether with large scale or small-scale miners. The earlier regulation, RR No. 17-2003 prescribed only a 1% withholding tax rate.
The reduction in the withholding tax rate , hopefully, should be able to address the burden on both the buyers as withholding tax agents and on the sellers. The buyer-withholding agent is now made liable for the amoun
t of taxes not withheld plus interest and penalties should there be a failure of compliance with the regulations. Moreover, the change to 10% withholding tax rate under RR No. 7-2008 was a big jump from the original 1%. In many cases, an excessive withholding tax rate only results in huge amounts of creditable withholding taxes in the taxpayer account if the amount withheld is higher that the income taxes payable.
The new regulations also added a paragraph to the requirement of proof of withholding and remittance of the 5% withholding tax to enable sellers/possessors to claim the costs and expenses associated therewith. This addition amplifies the importance of the withholding of tax on purchase of minerals, failure of which will cause the disallowance of the costs and expenses to sellers/possessors.
As certain ambiguities of RR No. 7-2008 have been addressed by th recent issuance, buyers of minerals, regardless of whoever is selling, can now be assured that the 5% rate is the correct withholding tax.