The study provides an overview of the Philippine jewelry industry and its taxation including tax incentives and other benefits under RA 8502 (Jewelry Industry Development Act of 1998). It also assesses how well the said law meets its objectives and identifies issues that hinder the growth of the industry. The findings of the study may serve as inputs in the formulation of a national program or a roadmap in developing the country’s jewelry industry.
The operation of the industry is allegely largely informal or underground which results 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 RA 8502. 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 (BOI).
The Philippine jewelry industry is composed of two sectors, namely: fine jewelry and costume jewelry sectors. Fine jewelry industry uses precious metals and stones in the manufacture of their finished products. In case of precious metals, gold and silver are at the top of the list while in the case of precious stones, diamonds and colored stones are the top choices.
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; 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.
The fine jewelry sector 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.
On the other hand, costume jewelry is categorized by the DTI as fashion accessories. 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.
It is estimated that there are about 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, exporters and other related suppliers. Costume jewelers cater to both local and export markets. DTI data reveals that fine jewelry export is a promising industry as indicated by the continuous growth from a total of US$36.91 million (PhP1.52 billion) worth of fine jewelry export in 2006 to US$95.73 million (PhP3.93 billion) in 2012.
At present, the governing law on the taxation of the jewelry industry is the NIRC as amended by RA 8502 issued in 1998. Section 150(a) of the NIRC, categorized jewelries 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 (QJEs) or those which are duly registered with the BOI, there are various tax incentives and benefits that may be availed of pursuant to RA 8502. To avail of the incentives and assistance, the jewelry enterprises must register with the BOI and apply for accreditation under RA 8502.
There were approximately 262 identified jewelry enterprises as gathered from the different jewelry industry associations and from PhilExport as of 2011. Out of the total number of firms, only 100 registered as QJEs 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 since RA 8502 has been implemented.
It can be said that the benefits under RA 8502 have not yet been fully availed of by the jewelry industry. Most of its members opted not to register due to perceived difficulties in the registration. It is gathered from industry players that the procedures for registration and renewal are tedious and repetitive and that the fees are cumbersome. According to them, there are voluminous documents required in order to be accredited and in the annual renewal of accreditation, the set of documents previously submitted are required to be re-submitted. The compilation of such documents is costly as each requirement needs either to be authenticated or notarized. There is therefore a need to streamline the registration and accreditation procedures. A 3-5 year renewal period 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 QJEs, excise tax collection on jewelry is still low, which means that most of the jewelry enterprises either operate underground or do not properly pay the tax. The BIR should therefore focus its tax mapping activities in known places where most local jewelers operate. There is also a need to monitor domestic sales of jewelry manufacturers and intensify campaign against smuggling. This can be done by strictly requiring the issuance of official receipts and the corresponding sanctions/penalties to those who fail to comply be applied.
The jewelry industry provides a window of opportunity. As can be gleaned from the DTI data on jewelry export, the industry has a great potential. At present, tax concessions and incentives are already in place such as incentives under RA 8502 and trainings offered by the Technical Education and Skills Development Authority (TESDA) and other jewelry institutions. What the jewelry enterprises need now is a massive promotion of their products in the international market.
