More evidence that the Philippine informal gold mining sector has been flourishing at the expense of the government.
From Reuters (bold emphasis mine)
Up to 90 percent of small-scale Philippine gold production is being smuggled out of the Southeast Asian country, according to estimates from officials and traders, much of it to China.
The potential revenue being lost is considerable: The Philippines, the world's 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices. About 56 percent of that came from small-scale miners, data from the Bureau of Mines showed.
Recent tax increases leads to unintended consequences, as small scale mining activities go underground…
More from the same article
A top central bank official told Reuters new taxes on gold sales imposed last year appear to be a key factor in the alarming rise in gold smuggling. But the head of the revenue agency said in an interview the 7 percent tax on gold sales will not be rolled back and suggested better policing of the borders instead.
The Customs Department, however, told Reuters the problem has become so overwhelming it can do little about the smuggling of gold and other minerals out of the archipelago of more than 7,100 islands.
"All the production of small-scale mines, almost all, now goes to the black market, because there is no tax in the black market," said Rex Banggawan, an accountant for a small-scale mining cooperative that buys and sells gold in the mountain city of Baguio in northern Philippines. "After that, smuggling is automatic."…
The amount of gold sold by small-scale miners and traders to the Philippine central bank in the second quarter plunged 98 percent from a year earlier, according to the latest government data. By law, all gold produced by miners such as Mulato in the Philippines should be sold to the central bank at around world market prices.
It has been an accelerating trend over the past year. The data shows central bank gold purchases dropped an annual 4 percent, 76 percent and 88 percent in the second, third, and fourth quarters of 2011, respectively. It fell 92 percent in the first quarter.
Small-scale gold mining output, is the main source of the central bank's gold reserves, which hit a record high of $10.4 billion early this year.
For authorities, it would be better to “police” than to waive taxes. This assumes that smuggling or the informal sector will be curtailed by mere regulatory enforcement, yet the above already demonstrates their helplessness: note the phrase “become so overwhelming it can do little about the smuggling”
Doing the same things over and over but expecting different results has been the entrenched characteristic of politics. The essence of politics is symbolism. The impression to “do something” are actually meant to generate votes.
In reality, the purported political path to “police” gives political authorities a share in the the profits. Possibly to finance coming elections?
The problem extends beyond gold to other minerals, which are being smuggled out of the porous and inadequately policed borders of the archipelago.
The Philippines has one of Asia's richest trove of minerals with reserves of gold, copper, nickel, chromite, manganese, silver and iron worth a total of around $1 trillion.
Foreign investors are circling around one of Asia's hottest emerging markets. The $225 billion economy grew 6.4 percent in the first quarter, second only to China among Asian economies. But mining investment has been held up for various reasons, including a moratorium on new projects until Congress passes long delayed legislation governing the industry.
That has left the field largely to small-scale miners, who fall under local regulations and are often in collusion with the officials governing them.
More politicization of the industry (not limited to gold) via (partial) prohibition (EO 79), regulations and taxes translates to booming black markets, smuggling, criminality (e.g. organized crime, violence, etc...) and corruption, as well as environmental pollution.
As I recently wrote,
Informal economy, corruption, rent seeking and a general deterioration in the quality of governance are symptoms or are products of asphyxiating regulations, bureaucracy, high burdens from taxes and the cost of compliance, insecure property rights and involuntary exchanges or the intense politicization of the industry.
Nevertheless also do expect more massive illegal and wildcat mining in the 78 areas that has been prohibited from mining which should lead to environmental degradation. The people who will undertake the fly by night mining operations will likely be wards of politicians.
In the realm of politics, natural laws of economics simply vanish or will submit to the will of politicians.
Of course all these also goes to show that the public have been hoodwinked to give the incumbent government high approval ratings, when in reality, what has been providing the pivotal lift to the Philippine economy has been the informal sector.
Said differently, what has been seen as political success has really been government failure. After all, politics is all about smoke and mirrors.
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