With P34B in losses, BSP seeks tax exempt status

MANILA, Philippines—The Bangko Sentral ng Pilipinas (BSP), which incurred a nearly P34-billion net loss last year, has reiterated its call for exemption from all types of taxes.

According to the BSP, the savings from tax exemption will be used to fund vital activities, such as management of liquidity within the economy to continue keeping inflation within manageable levels.

The BSP pays about P4 billion in taxes every year, including income, value-added, real property and documentary stamp taxes, among others.

BSP Deputy Governor Juan de Zuñiga Jr., who is also the central bank’s general counsel, said additional resources are needed so that the BSP can further improve on the fulfillment of its mandate without harming its financial position.

“We are pushing for tax exemption for the BSP,” said De Zuñiga. He said other central banks in the world are exempted from taxes.

The BSP has taken pride in being able to help maintain a benign inflation within the country, but officials said keeping the increase in consumer prices within modest levels comes at a high cost for the BSP.

For instance, it spends billions in payment of interest on deposits placed by banks. The BSP gathers deposits from banks to keep excess cash from circulating in the economy and, therefore, prevent inflation from going beyond manageable levels.

Deposits placed in the central bank’s short-term special deposit account facility alone stand at about P1.6 trillion, for which it pays a little over 4 percent in interest across all maturities.

Data from its latest income statement showed that it spent close to P96 billion on interest payments last year.

Officials also said the BSP spends a significant amount for its foreign-exchange trading operations, which is necessary in helping reduce volatility of the exchange rate. In times of significant appreciation pressures on the peso, the BSP have to spend more on dollar buying to prevent significant spike in the value of the peso.

Last year, the BSP incurred P36 billion on losses from its foreign-exchange operations due to the need to temper the rise of the peso. These losses were partially offset by income of the BSP from other activities, and so the monetary authority’s net loss last year was capped at about P33.69 billion.

“We want to be allowed to have adequate reserves as may be necessary for the preservation of the financial soundness of the BSP,” De Zuñiga said.