NIRC Tax Research Joumal Vol. XXV.3. May — June 2013 Profile and Taxation of the Philippine Jewelry Industry* I. INTRODUCTION Jewelry production in the Philippines has been in existence for quite a number of years. The materials used in its production are a mix of local and foreign resources. The main raw materials for fine jewelry, namely gold and silver, are locally mined while gem stones are either locally extracted or imported. Raw materials for costume jewelry are also largely gathered from around the country. ‘The operation of the industry is alleged to be largely informal or underground which resulted in its marketing strategy being mostly limited to agents-better known as ‘kumares and suking alahera’ which later evolved as a local jewelry industry. In the 1990s, however, some industry players started to bring their operations to the open when they found a niche in the export arena, In 1998, the government took a major step to promote and encourage the growth and development of the jewelry industry through the enactment of Republic Act (RA) No. 8502', otherwise known as the Jewelry Industry Development Act of 1998. In recognition of the industry's potential to generate employment, enhance tax collection, increase the industry linkages to other sectors of the economy and encourage exports, certain tax incentives were granted to encourage local jewelers to join the formal sector and register with the Board of Investments (BOD), This study provides an overview of the Philippine jewelry industry and its taxation including tax incentives and other benefits granted under RA 8502. It also assesses how well the said law meets its objectives and identifies issues that hinder the growth of the industry. * Prepared by Ms. Christine Anne F. Almozara, Tax Specialist I reviewed and approved by Ms. Ma. Berlie L, Amurao, Supervising Tax Specialist and Ms. Marlene L. Calubag, Chief Tax Specialist, Indirect Taxes Branch, NTRC. ' Entitled, “An Act to Promote the Development of the Jewelry Manufacturing Industry, Providing Incentives Therefor and for Other Purposes,” approved February 13, 1998 and effective July 9, 1998, Profs and Txaton ofthe Pippine Tovey Tay i(NIRC Tax Research Journal The findings of the study may serve as inputs in the formulation of a national program or roadmap in developing the country’s jewelry industry. Il, THE PHILIPPINE JEWELRY INDUSTRY The Philippine jewelry industry is composed of two sectors, namely: fine jewelry and costume jewelry sectors, A. Fine Jewelry Sector Vol. XXV.3. May— June 2013, ‘The implementing rules” of RA 8502 defines fine jewelry as: (@)_ Articles of personal adornment made of precious metals, stones, pearls or combinations thereof (for example: rings, bracelets, necklaces, brooches, earrings, watch-chains, fobs, pendants, tie pins, cufflinks, combs, tiaras, dress-studs, religious or other medals or insignias); and (®) Articles of precious metals, with or without stones, for personal use of a kind normally carried in the pocket, handbag or in the person (for example: cigarettes cases, powder boxes, chain purses and cachou boxes). Based on the above definition, it is noted that the fine jewelry industry uses precious metals and stones in the manufacture of their finished products. of precious metals, gold and silver are at the top of the list while in the case of amonds and colored stones are top choices. presents the distribution of raw materials used by jewelry manufacturers based on a survey conducted by Private Enterprise Accelerated Resources Linkages Project precious stones, Phase 2 (PEARL 2) in 2005, viz.: Table 1. USAGE OF PRECIOUS METALS AND STONES IN FINE JEWELRY PRODUCTION Percent Percent Precious Metals | yur‘, | Precious Stones | yee retin Gold 66 Diamonds 46 Silver | 33, Colored Stones 38, Others 35 Pearls 16 ‘Source: PEARL 2 DTI-DOF-BOC-BIR (2004), Revised Rules and Regulations Implementing RA No, 8502 Otherwise known as the Jewelry Industry Development Act of 1998. Joint DTI-DOF-BOC-BIR Administrative Order No. 1 Series of 2004. Manila, B Pref and Taxation of the Filippi Few Test The following tableNIRC Tax Research Journal ‘Vol. XXV.3 May — June 2013 The Philippines has a rich supply of gold and silver. Gold is mined in southern provinces like North and South Cotabato, Sultan Kudarat, General Santos and Surigao, while silver is extracted in the Northern Provinces, specifically in Benguet. Precious stones are yet to be discovered in the Philippines while semi- precious stones such as jade and onyx are known to exist although sources are largely undeveloped due to lack of state of the art technology. Among the locally supplied gemstones include: jade, mauve, jadeite, jasper, garnet, tektite, quartz, epidote, blue and green schist, and opal. There is also abundant supply of south sea pearls and other cultured pearls.’ The technology utilized in creating fine jewelry is generally labor-intensive since production is manual and volume requirements are low. Most tools are hand operated although a few local jewelers have already acquired casting machines and ‘wax injectors, which characterize a higher volume of production.* Manufacturers of fine jewelries are mostly small enterprises with very few medium to large firms. According to a study by PEARL 2 conducted in 2005, the firms are classified based on their volume of production on a monthly basis, as follows:* Table 2. CATEGORIES OF FINE JEWELRY ENTERPRISES Category Volume (units/month) ‘Small (low-volume) | Less than $00 units Medium (medium-volume) | $00 units up to 5.000 Large (high-volume) 5,000 units and above ‘Source: PEARL. > About 80% of the players in the fine jewelry industry are small firms, 10% are medium enterprises and the last 10% are large companies. The small firms usually cater to the local market while medium firms may be engaged in both local and export markets, and large firms, mostly-export oriented. The Department of Trade and Industry (DTI) estimates that there are about 10,000 cottage-type firms engaged in fine jewelry scattered all over the country — Bulacan, Benguet, Manila, Cebu, Davao and the Caraga Region. These small players are usually home-based and typically found in the province of Bulacan with the PEARL? (2005), Site of the Sector Report onthe Philippine Jewelry Industry Province of Bulacan, 2012. “Jewelry.” http://www.bulacan.gov.phvbusinessiewelty.php (viewed April 16, 2013) 5 Private Enterprise Accelerated Resources Linkages Project Phase 2 (PEARL2), 2005. Fine Jewelry Seetor: Production Management Assessment Report, (Prosi and Taxon of the Philippine Towel Tatty 3NTRC Tax Research Fournal Vol. XXV.3 May — June 2013 largest concentration in the town of Meycauayan. The Meycauayan Jewelry Industry Association (MJIA) estimates that there are about 2,000 jewelry manufacturers in the province of which 250 are medium to large companies engaged in both the manufacture and export of fine jewelries.® On the other hand, the fine jewelry sector market is divided into two markets: local and international. The local jewelry business consists of independent jewelers and chain jewelry stores. The independent jewelers offer fashion jewelry items while chain jewelry stores focus on several product categories such as diamonds and usually cater to the bridal market. B. Costume Jewelry Sector Costume jewelry is categorized by the DTI as fashion accessory. Like fine Jewelry, it is also an export-oriented industry. Fashion jewelry items are considered ‘seasonal as the demand changes according to fashion trends.” ‘The costume jewelry industry is heavily dependent on local raw materials, which are sourced from coastal provinces such as Samar, Leyte, Bohol and Panay Islands. Other components like bindings, snaps, connectors and plastic beads are mostly imported through agents or wholesalers.* Raw materials are classified into unprocessed, semi-processed or processed. Unprocessed raw materials include shells, woods, bones and stones in their natural form, Semi-processed raw materials are processed to some extent by the gatherers but need further in-house processing such as shaping, painting, dyeing and sanding. Processed materials, on the other hand, are ready for assembly such as beads, chains, paints, metal parts and synthetic cords, leather strips and packaging materials. The percentage use of the raw materials are as follows: ‘Table 3. USAGE OF RAW MATERIALS IN COSTUME JEWELRY PRODUCTION Precious Metals | Percent Distribution Processed __s4 Unprocessed 4 Semi-processed 2 | Source: PEARL 2 © Province of Bulacan, 2012. “Jewelry.” 7 PEARL? (2003). “State of the Sector Report: Costume Jewelry.” * pia. 4 Profile and Taxation of the Philippine Jewelry IndustryNIRC Tax Research Journal Vol. XXV.3. May-June 2013, m1. It is noted that manufacturers of costume jewelry are largely concentrated in Cebu. It is estimated that there are around 2,000 firms in the costume jewelry of which only about 100 are engaged in both manufacture and export.” The industry is composed of gatherers, assemblers, manufacturers, exporters and other related suppliers. Costume jewelers cater to both local and export markets. They sell their products through ‘traders; others have their own stores while the rest supply boutiques, specialty shops or department stores. TAXATION AND INCENTIVES OF THE JEWELRY INDUSTRY At present, the governing law on the taxation of the jewelry industry is the National Internal Revenue Code (NIRC) as amended by RA 8502 issued in 1998. Under Section 150(a) of the Tax Code, jewelries are categorized as non-essential goods with an excise tax rate of 20% based on the wholesale price if locally produced or the value used by the Bureau of Customs (BOC) in determining tariff and customs duties if imported, However, for the so-called qualified jewelry enterprises (QUEs), i.e. those which are duly registered with the BOI, the following tax incentives and benefits may be availed of pursuant to RA 8502: (@) Entitlement to zero duty on imported raw materials, which include precious/fine metals, loose gems, precious stones, jewelry parts, accessories and supplies for use by the QU! (6) Exemption from the imposition of excise tax on all goods commonly or commercially known as jewelry, whether real or imitation of pearls; precious and semi-precious stones and imitations thereof; all goods made of, or ornamented, mounted or fitted with precious metals or imitations thereof; (©) Entitlement to zero duty on imported capital equipment, including spare parts and tools; (@) Deduction from taxable income equivalent to 150% of expenses incurred in training schemes approved by the appropriate agency and which shall be deductible during the financial year the expenses were incurred; (e) Entitlement to gold and silver sales by the Bangko Sentral ng Pilipinas (BSP) under minimal margins; Ibid. Profile and Taxation of the Philippine Jewelry Industry 3NTRC Tax Research Journal Vol. XV.3. May June 2013] o (g) @ Authority to buy gold and silver directly from other sources without any specific authority from the BSP. However, this shall not include sale of gold and silver from the small-scale miners; Inclusion of the locally manufactured jewelry products in the government's tourist duty free shops, including the promotion, advertisements and sale of Jewelry products; and Eligibility to other incentives provided for by other special laws such as: i, Republic Act No. 7844 (Export Development Act of 1994) ii, Republic Act No. 7916 (Special Economic Zone Act of 1995); and iii, Executive Order No. 226 (BOI Omnibus Investment Code) This is with the provision that the QUE shall register under the abovementioned laws, or that the activity is export-oriented, and that there is no double availment of same incentives. To avail of the above incentives and assistance, the jewelry enterprise must register with the BOI and apply for accreditation under RA 8502. The following are the documentary requirements to be submitted: @ ) © @ © @ @) (h) Accomplished, signed, and duly notarized application for accreditation [Form RA 8502-1 available at the Project Evaluation and Registration Department (PERD) of the BOI) Annual business plan indicating the proposed importation and local acquisition of raw materials, supplies, machinery and equipment, tools and spare parts, as well as the projected production and sales covering its year of accreditation Location map and plant layout for each place of production Certificate of Registration with the BIR Certificate of Accreditation as Importer issued by the Customs Accreditation Secretariat (CAS) of the BOC Mayor's Permit or City/Municipal Business Permit Endorsement from a duly accredited jewelry association certifying membership of good standing, Sworn statement that the enterprise shall exclusively use the raw materials, supplies, machinery and equipment, and tools and spare parts acquired with incentives under RA 8502 for jewelry manufacturing Profile and Taxation of the Philippine Jewelry Industry)NTRG Tax Research Jounal Vel XXV3 May — Tune 2015 (i) For newly-formed enterprise: Duly notarized certification by the enterprise of its total assets; For existing enterprise: Income Tax Return (ITR) duly filed with the BIR together with the attached Audited Financial Statement (APS) 4) For single proprietorship: Business Name (BN) Registration with the Department of Trade and Industry (DTD); For partnership, corporation and organization: Registration with the Securities and Exchange Commission (SEC) and Articles of Incorporation and By-Laws; For cooperative: Registration with the Cooperative Development Authority (CDA) " For the renewal of accreditation, the jewelry enterprise is required to submit the following: (@) Application for accreditation and all supporting documents applicable to “new” accreditation except the last item (b) Annual Report on Actual Operations ending calendar or fiscal year, whichever is applicable (BOI Form S-1, available at the PERD) (©) Original copy of the Import Incentives Availment Report indicating importations made with incentives during the previous year.'! It is noted that the jewelry association also needs to apply for accreditation with the BOI for the endorsement of its members for accreditation under the law. The following are the documents needed for accreditation of a new jewelry association: (@) Accomplished, signed and duly notarized application for accreditation (Form RA 8502-2, available at the PERD) (b) List of active members including their contact person, office and plant address, and telephone and fax numbers (©) Annual Information Return duly filed with the BIR, including attachments, ifany (4) Accomplishment/Annual Report for the past one (1) or three (3) years, for member and non-member of the Confederation of Philippine Jewelers, Inc., respectively, indicating activities, programs and projects.'” Bureau of Investments (won 2012 Citizen Charter, |hutpz//ww.dti gov. ph/uploads/ DownloadableForms! BOIs20Charter.pdf (viewed April 23, 2013), wid, = wid, Profile and Taxation of the Philippine Jewelry Indusiry 7[NTRCTTax Reser Fournat Vor RWS May Tune 2013 | For the renewal of accreditation, the jewelry association must submit the following documents: (a) Application for accreditation and all supporting documents applicable to “new” accreditation except the last item (b) Accomplishment/Annual Report for the previous year indicating its activities, programs and projects'* On the other hand, the filing fees for application and renewal of accreditation are as follows: Table 4. FILING FEES FOR NEW APPLICATION AND RENEWAL OF ACCREDITATION UNDER RA 8502" Filing Fees Classification | Total Assets (including loan, except cost of land) New | Renewal Micro Enterprise _ | Not exceeding PhP3 Million PhP 1,500 | PhP 750 Small Enterprise | Exceeding PhP3 Million but not over PhP15 Million | PhP 3,000 | PhP 1,300 ‘Medium Enterprise | Exceeding PhP15 Million but not over PhP100 Million | PhP 4,500 | PhP 2,250 Large Enterprise __ | Exceeding PhP100 Million PhP 6,000 | PhP 3,000 The total processing time for the accreditation is 10 working days from the date of official filing/aceeptance of complete application, and the Certificate of Accreditation shall be valid for one (1) year and renewable thereafter upon compliance with the requirements stated above. The procedures in the registration at the BOI and availment of the tax incentives, import procedures including those on the release of tax and duty-free importation and accreditation’ approval of training programs by TESDA are enumerated in the Joint DTI-DOF-BIR-BOC Administrative Order No. 1, $. 2004, which sets the rules and regulations implementing RA 8502. Hereunder are the taxes applicable to QIEs vis-i-vis non-qualified jewelry enterprises (Non-QJEs) pursuant to RA 8502 on the sale of jewelry and purchase or importation of raw materials, supplies and capital equipment. © bid. "bid. 5 7 Profile and Taxation of the Philippine Jewelry Industry)NIRC Tax Research Journal Vol. XXV.3 May — June 2013, ‘Table 5. TAXATION OF QUALIFIED VIS-A-VIS NON-QUALIFIED JEWELRY ENTERPRISES PURSUANT TO RA 8502 Particulars Non-QUE. QUE 1. On Fine and Imitation Jewelry Import Duty © Imporiation of articles of fine jewelry and imitation jewelry > 3% or 10% Most Favored Nation (MEN) or 0% ASEAN ‘Trade in Goods Agreement (ATIGA) import duty based on the dutiable value of the imported item. [Tariff Heading Nos. 71.13 and 71.17 of AHTN 2012] Importation of articles of fine Jewelry and imitation jewelry > Same provision as Non-QUE Excise Tax © Onsale and importation > 20% excise tax based on the following: For domestic sale, consumption or for any other disposition — wholesale price on the removal of manufactured jewelry from its place of production or factory Forim — value of importation used by the BOC in determining tariff and customs duties, net of excise tax and VAT [See. 150(A), NIRC of 1997, as amended] On sale and importation > Exempt from the imposition of excise tax [Sec. 3(b) of RA 8502] VAT ‘© On domestic sale of VAT-registered Non-QUE or those with gross sales exceeding the threshold amounting to PhPI,919,500 > 12% VAT based on the gross selling price (including excise tax) of the jewelry sold domestically (output tax) On domestic sale of VAT- registered QUE or those with gross sales exceeding the threshold amounting to PhP 1,919,500 % 12% VAT based on the gross selling price (excluding excise tax) of the jewelry sold domestically (output tax) Profile and Taxation of the Philippine Jewelry IndustryNIRC Tax Research Journal Vol. XXV.3 May — June 2013 Particulars Non-QJE, QUE > The taxpayer is allowed to > The taxpayer is allowed to claim for the credit/refund of claim for the credivrefund of the input tax on his purchases the input tax on his purchases ‘of VATable goods, properties of VATable goods, properties or services, or services [Sec. 106(A), NIRC of 1997, as [Sec. 106(A), NIRC of 1997, as amended] amended] © On importation © On importation > 12% VAT based on total value % 12% VAT based on total value used by the BOC in used by the BOC in determining tariff and customs determining tariff and customs duties on the imported items, duties on the imported items, plus the customs duty and plus the customs duty less excise tax excise tax (exempt) [see, 107(A), NIRC of 1997, as [Sec. 107(A), NIRC of 1997, as amended] amended] © Onexpon sale © Onexport sale > 0% VAT on expor sales > Same provisions as Non-QUE | See. 106(A)(2)(a)(1), NIRC of 1997, as amended] > The taxpayer is allowed to claim for the credit/refuund of: ‘The input tax on his purchases of VATable goods, properties or services (See. 112, NIRC of 1997, as amended) ‘The excise tax paid, if any, on the locally produced articles exported whether so exported in their original state or as part of the manufactured product exported {[Sec. 130(D), NIRC of 1997, as amended) 10 Profile and Taxation of the Philippine Jewelry Industry]NIRC Tax Research Jounal Vol. XXV.3. May — June 2013 Particulars Non-QUE, Que Percentage | ® On the sale of jewelry not On the sale of jewelry not Tax exceeding the threshold set by the exceeding the threshold set by the ‘Tax Code and existing issuances, Tax Code and existing issuances, currently in the amount of currently in the amount of PhP1,919,500 PhP1,919,500 > 3% percentage tax based on > Same provisions as Non-QUE quarterly gross sales or receipts Income Tax | ¢ Sellers of jewelry Sellers of jewelry For individual taxpayers, rates ® Same provisions as Non-QUE, prescribed under Sections 24 and 25 of the NIRC, as amended > For corporations, rates prescribed under Sections 27 and 28 of the NIRC, as amended except for those who are entitled to an income tax holiday (ITH) under EO 226 | 2. On Materials Supplies and Capital Equipment Import Duty ‘On imported raw materials and supplies > 0% to 15% MEN or 0% ATIGA as per ASEAN Harmonized Tariff ‘Nomenclature (AHTN) Book 2012 ‘On imported capital equipment, tools and spare parts > 1% to 10% MEN or 0% ATIGA as per ASEAN Harmonized Tarif ‘Nomenelature (AHTN) Book 2012 {Tariff and Customs Code of the Philippines (TCCP)] On imported raw materials and supplies > 0% duty on raw materials and | supplies enumerated in Annex A of the Joint DTI-BOC-BIR Administrative Order No. 01, 2004 (On imported capital equipment, tools and spare parts > 0% duty on imported jewelry equipment, tools and spare parts enumerated in Annex B of the Joint DTI-BOC-BIR ‘Administrative Order No. 01, s. 2004 [Rule III, Sec. 1(a) and (6), Joint DTI-BOC-BIR Administrative Order No. 01, Series of 2004) Profile and Taxation of the Philippine Jewelry IndustryNIRC Tax Research Toumnal Vol. XXV.3. May— Tune 2013 Particulars Non-QUE, QUE Exeise Tax | © On local purchase and importation | ¢ On local purchase and importation of raw materials and supplies of raw materials and supplies > 2% on all non-metallic and > Exempt from excise tax on ‘metallic minerals such as but imported raw materials and not limited to diamonds, gold, supplies enumerated in Annex silver and platinum based on C of the Joint DTI-BOC-BIR the value used by the BOC in Administrative Order No. 01, determining tariff and customs s. 2004 duties, net of excise tax and VAT [Rule M1, Sec. 1(b), Joint DTI- BOC-BIR Administrative [Sec. 151(A)(3), NIRC of Order No. O1, Series of 2004] 1997, as amended] vaT * Ondomestic purchase of capital | «On domestic purchase of capital equipment, raw materials and equipment, raw materials and supplies supplies > 12% VAT based on gross > 12% VAT based on gross selling price selling price (excluding excise tax if purchased from another [See. 106(A), NIRC Of 1997, as QIE) amended] [See. 106(A), NIRC Of 1997, as amended] '* On importation of capital * On importation of capital equipment, raw materials and equipment, raw materials and supplies supplies > 12% VAT based on total value > 12% VAT based on total value used by the BOC in used by the BOC in determining tariff and customs determining tariff and customs duties on the imported items, duties on the imported items, plus the customs duty and plus the customs duty and excise tax excise tax (less excise tax if listed in Annex A, Band C of {[See, 107(A), NIRC of 1997, as Joint DTI-BOC-BIR amended] ‘Administrative Order No. 01, 8. 2004) {Sec. 107(A), NIRC of 1997, as amended) iz ~ Profite and Taxation of the Philippine Jewelry Indus)NIRC Tax Research Journal Vol XXV.3. May— June 2013 A survey of the taxation of jewelry in selected countries (Annex A) shows that in countries such as India, Indonesia and USA (Connecticut), a jewelry is not subject to excise tax per se but to the so-called luxury tax or wealth tax in addition to VAT/sales taxation and customs duty. Other countries such as Australia, Canada, China, Italy, and Vietnam impose VAT/sales and customs duty, while Thailand exempts from VAT the importation of gems to be used as raw materials for jewelry export while Singapore exempts from customs duty the importation of jewelry and diamonds. It is noted that the production and manufacture of exported products such as jewelry is included in the 2012 Investment Priorities Plan (IPP). The industries included in the IPP are entitled to incentives under EO 226. The BIR recently issued RR No. 5-2013 which prescribes the rules on the advance payment of business and income taxes and actual payment of excise tax by those who sell jewelry, gold and other metallic minerals to nonresident individuals not engaged in business within the Philippines and/or the nonresident foreign corporations. ‘This is in response to the growing popularity of selling jewelry, gold and other metallic minerals to alien individuals or foreign entities that come to the Philippines for a limited period of time for purposes of purchasing in cash, jewelry, gold and other metallic minerals, in whatever nature or form, These transactions make it difficult for the BIR to track down and/or to compel sellers to pay the taxes due the government. IV. IMPACT OF RA 8502 ON THE JEWELRY INDUSTRY A. BOI Registration and Renewal of Accreditation There were approximately 262 identified jewelry enterprises as of 2011 as gathered from the different jewelry industry associations and from PhilExport. Out of the total number of firms, only 100 registered as QUE with the BOI between 1998 and 2011. During such period, on the average, only about 25 firms registered either as new registrants or renewed their accreditation. It was also gathered that only one firm consistently registered for 11 years from the time RA 8502 was issued/implemented. When the law was passed in 1998, only 25 registered jewelry enterprises availed of the incentives. In 2004, when the functional implementing rules were enforced, 25 enterprises registered of which only six were new registrants. Registration peaked in 2005 with 32 registrants of which 11 were new registrants and in 2009 with 30 registrants of which six were new registrants. In 2010 and 2011, registration totaled to 25 and 27 firms of which six and two were new registrants, respectively. Table 6 shows that there was a low turnout of registrants as QUE. This is an indication that RA 8502 has not fared satisfactorily. [Profile and Taxation of the Philippine Jeweiry Industry 13)NIRC Tax Research Journal Vol. XXV.3 May — June 2013 Table 6. REGISTRATION AND RENEWAL FOR ACCREDITATION AS. QUALIFIED JEWELRY ENTERPRISE, 1998-2011 Year | gcntted Firms | Registrants | R21 | pepttrams 1998 262 25 0 25 1999) 262 2B 6 7 2000 262 19 6 3 2001 262 23 17 6 | 2002 262 20 16 4 | 2008 262 15 B 2 | 2004 262 25 19 6 | 2005 262 32 21 im 2006 262 a 8 oO 2007 pa pa [na na 2008 262 7 = a 2009 262 30 [24 6 2010 262 25 19 6 2011 262 27 25 2 ‘Source: Various Jewelry Industry Associations and PhilExport B. Export Performance of the Jewelry Industry The DTI'* data below show that fine jewelry export is a promising industry as indicated by the continuous growth from 2006 to 2012 except for a slight decrease in 2009. From a total of US$36.91 million (PhP1.52 billion)'® worth of fine jewelry products export in 2006, it grew to USS48.64 million (PhP2.00 billion) in 2008 after which it dipped to USS47.35 million (PhP1.94 billion) in 2009. The export earnings of the industry again increased to USS53.49 million (PhP2.28 billion) in 2010 and to USS58.17 million (PhP2.39 billion) in 2011. It is noted that in 2012, the highest value in fine jewelry export was recorded at US$9S.73 million (PhP3.93 billion). "Department of Trade and Industry (2013). Philippine Merchandise Export to the World. "© Foreign Exchange Rate: USS1,00 = PhP41.049 forall years. www.oanda.com (May 2, 2013). ry Profile and Taxation of the Philippine Jewelry IndustryIRC Tax Research Journal Vol XXV.3 May — June 2013 Figure 1. Fine Jewelry Export, 2006-2012 port Value Gn Billion PRP) 2009 201020112012, Meanwhile, costume jewelry export showed a declining trend from USS63.58 million (PhP2.61 billion) in 2006 to only USS10.12 million (PhPO.42 billion) in 2009. It then inched up to USS19.41 million (PhPO.80 billion) and US$32.75 million (PhP1.34 billion) in 2010 and 2011, respectively. However, it went down again in 2012 to US$29.78 million (PhP1.22 billion). Figure 2. Costume Jewelry Export, 2006-2012 Export Valve in Bilion PRP) 2006 2007 2008 ©2009 -20102011. 2012 As indicated by the graphs above, fine jewelry has taken over costume jewelry as the preferred export products since 2008. Fine jewelry exports accounted for 62% to 82% of total jewelry export and 12% to 17% of total fashion accessories export from. 2008-2012, Profile and Taxation of the Philippine Jewelry Industry 3NTRC Tax Research Journal Vol XXV.3. May— Tune 2013 Table 7. SHARE OF FINE AND COSTUME JEWELRY TO TOTAL JEWELRY AND FASHION ACCESSORIES EXPORT, 2006-2012 Percent Share To Total Jewelry | Percent Share to Total Fashion Export Accessories Export Year Fine Jewelry | Costume Fine Jewelry ‘Costume Export Jewelry Export Export Jewelry Export (%) ) ) cw 2006 36.73 63.27 10.57 18.21 2007 48.51 51.49 1.14 11.82 2008 62.36 37.64 11.70 7.07 2009) 82.39 17.61 13.16 2.81 2010 74.08 25.92 13.51 47 2011 63.98 36.02 12.68 714 2012 76.27 23.73 17.00 5.29 Source of basic data: DTI - Philippine Merchandise Export to the World, 2006-2012, ‘Tax Collection from the Jewelry Industry Given the 262 identified jewelry enterprises (Table 6) in 1998 to 2011, of which only an average of 25 enterprises qualified annually for the excise tax exemption under RA 8502, more local jewelers should have been paying for the excise tax, but data on these are not available. A number of local jewelers either do not pay at all because they still operate in the underground economy or they do not pay the correct taxes. On the other hand, as reported by the BOC, the volume of importation of the jewelry industry for the period 2007 to 2011 ranged from 1.13 million kilograms to 10.88 million kilograms annually. Meanwhile, the value of importation ranged from PhPO.99 billion to PhP6.1 billion of various items/materials described in the TCP with HS Code 7101 to 7118 and AHTN Code 710121 to 711890 which include raw materials, goldsmith wares and equipment for jewelry manufacture with taxes paid on the importation ranging from PhP 12.80 million to PhP95.03 million. (is Profile and Taxation of the Philippine Jewelry Industry](IRC Tax Research Journal Vol KRW May— June 2013 Figure 3. Volume and Value of Importation by the Jewelry Industry, 2007-2011 2009 2010201 sem Volume Value D. Participation in Jewelry Skills Training and Craftsmanship Training centers specifically for the jewelry industry workers have already been set-up and operationalized jointly by the government and private sector to upgrade the skills of the workers and improve productivity. These centers are as follows’ (a) Philippine Jewelry Training Center in Bulacan (>) San Eligius Jewelry Training Center located at the Cottage Industry Technology Center in Marikina City (©) Technology and Livelihood Resource Center in Makati (4) Gemlab Philippines in Quezon City, and (ec) TESDA in Taguig, Metro Manila.'” The following are the courses offered by the five (5) training centers in relation to jewelry craftsmanship, viz. " Board of Investments (BOD, “Development of the Jewelry Industry,” hitp://invest.cfo.gov ph/pdf/partl/development-ofsthe-iewelry-industry.pdf (viewed April 16, 2013) [Profite and Taxation of the Philippine Jewelry Industry 7NTRC Tax Research Journal Vol XXV3 May — Tune 2013, Table 8. COURSES OFFERED BY JEWELRY TRAINING CENTERS ‘Training Center Courses Offered Duration Meycauayan Jewelry Making | Jewelry Technology | 2years Training Center (Philippine Jewelry Training Center)"® | San Eligius Jewelry Training | Fine Jewelry Technology Course | 15 months Center' ~ Basic Jewelry Design - Stone Setting - Wax Model-Making = Jewelry Casting - Jewelry Polishing and Finishing - Electroplating - Master Pattern Making Technology Resource Center | Electroplating 30 hours (formerly Technology and : Lvelihioou'Rezounce Jewelry Appraisal and Pawnshop 15 hours Center)” Operation = Lecture: Gold testing and diamond grading, pricing, valuation and identification of gemstones, government laws and implementing guidelines related to pawnshop operation. = Hand-on: determining genuine stones and appraising of gold '® _hup://www.tesda,gov.phvinely 1 ki ng2%20 Training®<20Center (viewed April 16, 2013). hitpswww.dti.zov-ph/dti“index php2p=351 (viewed April 16, 2013). © pupitre. v.phvindex. php r ivelihood-training (viewed April 16, 2013). 18 Profile and Taxation of the Philippine Jewelry Industry(IRC Tax Resear Joural Vol XXV3 May — Tune 2013 Training Center Courses Offered Duration and diamond Gemlab Philippines”! Jewelry Appraising and Pawnshop 100 hours Operation and Management Basic Diamond Education (Diamonds, | 70 hours Basic Diamond Grading, Imitations, Treatments) and Valuation Advanced Courses - Gemology Diamond Grading 118 hours ‘Tutorial - Gemology Colored Stones & 76 hours Gem Identification Tutorial Jewelry Design 170 hours Jewelry Manufacturing 1 70 hours Jewelry Repair and Gold Plating 30 hours ‘New Courses (Soon to open) Fine Jewelry Plating 10 hours = Junior Jeweler's Program = Basic Stonesetting 1 TESDA Women’s Center | jewelry Making NC I 150 hours TESDA Jewelry Making — NC 11°? 842 hours Jewelry Making — NC II* 1,964 hours *'” hgp//gemlab.com.ph/company_profile:html (viewed April 16, 2013) 5 .ov.ph/inc/tvidetals aspx?institution=TESDA’ cals (viewed April 16, 2013) 2 nup/www.speedycourse.com plvcourses/4697ijewelry-making-fine-jewelry-ne-ii (viewed April 16, 2013). (viewed April 16, 2013), Profile and Taxation of the Philippine Jewelry Industry 19][NERC Tex Research Joumal VoLXXV3 May June 2013 E. Supply and Price of Gold Available data from National Statistical Coordination Board (NSCB), Bangko Sentral ng Pilipinas (BSP)"’, and the Mines and Geosciences Bureau (MGB)"* show that total gold production for the period 2002-2010 ranged from Imillion troy ounces to 1.3 million troy ounces with a value which ranged from PhP18.4 billion to PhP72.5 billion. The bulk of the gold produced came from small scale miners which accounted for 50% to 83% of total production. As shown below, the share of gold by small scale miners was on the decline since 2009. The decline became serious in 2011 when gold production by small scale miners was down to only 50%. igure 3. Philippine Gold Production, 2002-2011 I | 2002 2003 2004 2005 2008 2007 2008 2009-2010 2011 | | Large Seale Mining mSmalScale Minin “Source: MGB. NSCB, IndexMun a = 7 As mandated under Presidential Decree (PD) No. 1899°” and RA 7076", small scale miners” shall only sell their gold to the BSP since jewelry manufacturers are not allowed to buy directly from them. Santiago, M. R. (2008). Bangko Sentral ng Pilipnas Gold Reserves. GEMS’ Annual Precious and Base Metals Seminar. London. % Mines and Geosciences Bureau (2012), “Philippine Metallic Mineral Productio huips/!www.mab.gov.ph’Files Statistios’ MerallieProduction pdf (viewed September 2, 2012). 7 Entitled, “Establishing Small-Scale effective January 23, 1984, ing as a New Dimension in Mineral Development, * Entitled, “An Act Creating a People’s Small-Scale Mining Program and For Other Purposes,” approved June 27, 1991 and effective July 18, 1991 * Small scale miners pay 2% excise tax on minerals extracted as provided in Section 150 of the NIRC. 30 Pref and Texan of tha Philippine Vevey Todas]NIRC Tax Research Journal Vol. XXV.3 May — June 2013 As gathered, jewelry manufacturers purchase gold from the BSP at 24 carat in grains and thin sheets with selling prices based on the daily London Metal Exchange (LME) price plus an estimated 2% to 3% processing fee.” However, although, jewelers are assured of the quality of gold (up to 99% pure) when buying from the BSP, they have cited that high taxes are driving them to source their gold elsewhere." Y. ISSUES AND PROBLEMS OF THE JEWELRY INDUSTRY A. Tedious and Cumbersome Registration and Acereditation Process As QJEs It is gathered from industry players that the procedures for registration and renewal with the BOI are tedious and repetitive and that the fees are cumbersome. According to them, there are voluminous documents required in order to be accredited and that in the annual renewal of accreditation, the same set of documents previously submitted are required to be re-submitted. The compilation of such documents has monetary consequences as each requirement needs either to be authenticated or notarized, hence, the documentation alone can be costly. B. Issues in Taxation Pursuant to Section 130(A)(1) of the NIRC, owners or possessors of excisable products are liable to pay excise tax due on such mineral products. Thus, while QUES are exempt from paying the 20% excise tax on their jewelry inventory, they are liable to the 2% excise tax on the minerals, i.e. gold and silver or others which they use as raw materials if they cannot prove that the corresponding mineral excise tax due thereon has been paid. Hence, while they are not assessed and required to pay the 20% excise tax on their manufactured jewelry inventory, they are imposed a 2% excise tax on minerals found in their possession.” » Province of Bulacan, 2012. “Tewelry.” * Ed ‘Velasco, “Gold tax hurting jewelry industry”, dhupi/Aeww ribune.net.h/index.php/business/ten/73.38-gold-tas-hurting-iewelrssindustry (viewed May 15, 2013). » Republic of the Philippines (1997). The National Internal Revenue Code of the Philippines. Section 130 (A) (1) (a); Section 151 (A) (3) (a), (); and BIR RR 6-2012. Taxation of the Sale of Gold and Other Metallic Minerals to Bangko Sentral ng Pilipinas and Other Entities, Amending Revenue Regulations No. 7-2008 and Further Amending Section 2.57.2 (1) of Revenue Regulations No. 9-2008, as Amended. [Profite and Taxation of the Philippine Jewelry Industry 21( NIRC Tax Research Journal VoL XV. May Tune 2013 C. Jewelry Smuggling Jewelries are normally concealed in hand-carry baggages and can thus be easily smuggled, This is evidenced by several news reports” on attempted fine jewelry smuggling at the Ninoy Aquino International Airport (NAIA) and other various forms of jewelry smuggling. Although there is no official data on the amount of jewelry smuggled each year, it is alleged that tax and other duties collection on jewelry could have been higher if smuggling is at least curbed. On the part of formal jewelry traders, their income are significantly reduced as the public likely buys from informal traders/sinugglers due to cheaper prices. VI. CONCLUSION AND RECOMMENDATIONS The jewelry industry is a window of opportunity. As can be gleaned from the DTI data on jewelry export, the industry indeed has a great potential. At present, tax concessions are already in place such as incentives under RA 8502 and trainings offered by TESDA and other jewelry institutions, What the jewelry enterprises need now is a massive promotion of their products in the international market. However, the benefits of RA 8502 to the jewelry industry have yet to be fully utilized. Most of its members opted not to register due to perceived difficulty in the registration as QJEs. There is therefore a need to streamline the registration and accreditation procedures. A 3-5 year renewal may be considered in lieu of the yearly renewal of accreditation. The long list of documentary requirements may be shortened to the most important documents only. Despite the non-registration as QUEs, there is still low excise tax collection on jewelry which means that most of the jewelry enterprises either operate underground or do not pay the proper tax. The BIR should therefore focus its tax mapping activities in known places where most local jewelers operate. Lastly, there is a need to closely monitor domestic sales of jewelry manufacturers and traders, strictly require the issuance of official receipts and enforce the corresponding sanetions/penalties to those who fail to comply; and intensify campaign against smuggling. Logarta, L, (1995). Cover-up Try on Jewelry Smuggling Thwarted. Manile Standard: 19. (viewed February 4, 2013) Frialde, M. (2005). “Customs Crackdown on Chinatown's Jewelry Smugglers." Philippine Star. Ip ewwe phil 276623/eustoms-crack: wn%4C2%492s-jewelry-smugale (viewed February 4, 2013) Alave, — K. —(2009).— “Briton Held for Jewelry Smuggling.” bupv/globalnation inquirer-netinews/breakingnews/ view/200908 14-220250/Briton-held-for-jewelry-smugeling, (viewed February 4, 2013) = Profile and Taxation of the Philippine Jewelry IndustryNIRC Tax Research Journal ‘Vol. XXV.3 May — June 2013 Annex A TAXATION OF JEWELRY IN SELECTED COUNTRIES Country | Excise Tax vaT* PY | Luxury Tax | Wealth Tax Philippines | 20% for 12% on Varied rates NQHEs | domestic sales and importation 0% on export sales Australia 10% on 18k $% on 18k jewelry and Jewelry and diamonds diamonds ‘Canada None 3% Federal 0-8.5% Depends on the 12-15% type of jewelry | Provincial and country of origin China 17% sales and | 35% on jewelry import of and diamonds jewelry and | diamonds India” None 1% on sales | 10% on jewelry 1% and diamonds 0% import VAT Indonesia™* 10% import | 10% on jewelry 75% VAT and diamonds Italy 21%on sale of | 2.5% on jewelry jewels/jewelry” | _ and diamonds Duty Calculator (2012). “Import Duty & Taxes for Importing 18k Jewelry and Diamonds in “Thailand” htt:/www.dutvealeulator,com/popular-import:tems/import-duty-and-taxes-for-18ktjewelry-and= diamonds (viewed July 12 2012) hid, © Kreklewetz, M. (2006). “Jewelry Industries.” Retrieved July 9, 2012, * Mukherji, B., D. Nayak, et al. (2012), “India Removes Excise Tax on Gold Jewelry, http://online,wsj.convarticle/SE10001424052702304363 104577389443337247370 ml (viewed July 9, 2012). * PKF Intemational (2012). “PKF Worldwide Tax Guide 2012: Indonesia," hupu/www pkficom/media’387002/indonesia 2012.pdf (viewed Ianuary 28, 2013) Profile and Taxation of the Philippine Jewelry Industry 23NTRC Tax Research Journal Vol. XXV.3 May — Tune 2013, Country | ExciseTax | vaT™ | THPOMERSHOMS | axury Tax | Wealth Tax Thailand None Exempt: | 20% on jewelry Imporation of | and diamonds gems to be used. as raw materials for jewelry export. 7% sales and import of Jewelry and diamonds Singapore 7% sales and | 0% on jewelry and import of diamonds | jewelry and diamonds Vietnam 10% sales and | 25% on jewelry import of and diamonds Jewelry and | diamonds Connecticut, 5.5% 3% USA © European Commission (2013). VAT Rates Applied in the Member States of the European Union. 24 Profile and Taxation ofthe Philippine Jewelry Industry