1 ERD ESTIMATES PRE-PRODUCTION OF KHUNDII PROJECT TO TOTAL USD 32 MILLION WWW.ZGM.MN PUBLISHED:2019/01/21      2 NON-PERFORMING LOANS JUMP 54.8 PERCENT IN 2018 WWW.ZGM.MN PUBLISHED:2019/01/21      3 INNER MONGOLIA SEES RECORD FOREIGN TRADE VOLUME IN 2018 WWW.EN.CE.CN PUBLISHED:2019/01/21      4 MORE FLIGHTS BETWEEN SOUTH KOREA AND MONGOLIA WWW.NEWS.MN PUBLISHED:2019/01/21      5 CROSS-BORDER BRIDGE CONNECTING RUSSIA & CHINA TO OPEN IN 2020 WWW.RT.COM PUBLISHED:2019/01/21      6 GOLD, SILVER AND PLATINUM NOW PRINTED DIRECTLY ONTO FABRICS WWW.MINING.COM PUBLISHED:2019/01/21      7 LAW AMENDED TO LEGALIZE DISMISSAL OF SPEAKER BY MAJORITY OF MPS WWW.PRESIDENT.MN PUBLISHED:2019/01/21      8 MONGOLIAN TEAM SUCCESSFULLY COMPLETES DAKAR RALLY WWW.MONTSAME.MN PUBLISHED:2019/01/21      9 CHINA’S SLOWDOWN IS MINERS' SINGLE BIGGEST FEAR THIS YEAR — REPORT WWW.MINING.COM PUBLISHED:2019/01/18      10 CHINA, RUSSIA, MONGOLIA JOINTLY PROTECT SIBERIAN CRANE WWW.XINHUANET.COM PUBLISHED:2019/01/18      TAOBAO САЙТАД МОНГОЛД ҮЙЛДВЭРЛЭВ ГЭСЭН ЦЭС НЭМЭГДЭНЭ WWW.EAGLE.MN НИЙТЭЛСЭН:2019/01/21     БНХАУ-ЫН НҮҮРСНИЙ ОЛБОРЛОЛТ СҮҮЛИЙН 3 ЖИЛИЙН ДЭЭД ТҮВШИНД ХҮРЭВ WWW.BLOOMBEGTV.MN НИЙТЭЛСЭН:2019/01/21     МАНАЙ УРАЛДААНЧИД “ДАКАР РАЛЛИ”-ГААС ХҮРЭЛ МЕДАЛЬ ХҮРТЛЭЭ WWW.UNUUDUR.MN НИЙТЭЛСЭН:2019/01/21     2019 ОНЫ ИНФЛЯЦИЙН ХҮЛЭЭЛТ 7.6 ХУВЬ WWW.BLOOMBERGTV.MN НИЙТЭЛСЭН:2019/01/21     ОРОС, ХЯТАДЫГ ХОЛБОСОН ГҮҮР 2020 ОНД НЭЭЛТЭЭ ХИЙНЭ WWW.NEWS.MN НИЙТЭЛСЭН:2019/01/21     МОНГОЛ УЛС 21 НЭР ТӨРЛИЙН ВАКЦИН, 23 ОНОШИЛГООНЫ ТӨХӨӨРӨМЖ ҮЙЛДВЭРЛЭНЭ WWW.MONTSAME.MN НИЙТЭЛСЭН:2019/01/21     ТЭТГЭВРИЙН ЗЭЭЛИЙН ХҮҮГ 10 ХУВЬ БОЛГОН БУУРУУЛЛАА WWW.UNUUDUR.MN НИЙТЭЛСЭН:2019/01/21     "RIO TINTO" НЭГЖ ХУВЬЦААНДАА 1.74 АМ.ДОЛЛАРЫН НОГДОЛ АШИГ ТАРААЖ МАГАДГҮЙ WWW.BLOOMBERGTV.MN НИЙТЭЛСЭН:2019/01/21     ЦАГААН САРЫН БЭЛЭГНИЙ МӨНГӨ ЭРЭЭНИЙГ ДЭМЖСЭЭР БАЙНА WWW.ZGM.MN НИЙТЭЛСЭН:2019/01/18     ХОЛБООНЫ НӨӨЦИЙН САН БОДЛОГЫН ХҮҮГЭЭ ӨСГӨХӨД ДЭЛХИЙН 170 ОРЧИМ ВАЛЮТЫН ХАНШ СУЛАРДАГ WWW.IKON.MN НИЙТЭЛСЭН:2019/01/18    

Higher gold royalty poses threat to FX reserves www.zgm.mn

Due to consecutive failure to form the quorum, the Parliament has delayed its plenary sessions for two months. One of the key items on the order list was a bill on extending 2.5 percent gold royalty for another three years, which was supposed to be ratified before the turn of the year. Thus, gold tax will now be set at pre-revision level at 5-10 percent, depending on the global price of gold.

According to a study conducted by the Bank of Mongolia (BoM), higher royalties lead to lower gold purchase, which ultimately affects foreign exchange (FX) reserves. For instance, gold tax was at an unbearably high level of 68 percent with the sudden income tax in 2006-2013. As a result, gold purchase fell from 15.5 tons to 2.1 tons by 2010. In other words, the BoM’s treasury fund was almost drained empty.

Officials explain that the sudden income tax, which raised gold tax from 5 percent to 68 percent, was due to boom in copper price; however, the decision had more adverse effects than its benefits as the number of artisanal miners drastically increased as a result.

The 2.5 percent gold royalty was approved in 2014. The result was almost immediate as gold purchase consistently increased in an annual amount, reaching a record high of 22 tons last year, which is 10 percent higher than the previous record in 2017, expanding FX reserves by USD 800 million to a 15-year record.

Therefore, the increased gold royalty is raising concern over a potential tax avoidance of gold producers, reduced gold purchase and increased illegal transportation of gold. A spokesperson of the BoM previously stated, “This law was ratified to boost the economy that was collapsing in 2014. The 9 percent royalties will increase budget revenue by only MNT 50 billion. BoM views the 2.5 percent royalties should be extended by at least 3 years.” BoM estimates to increase foreign exchange (FX) reserves by USD 750 million this year. The 2019 Monetary Policy Guidelines ratified by the Parliament stated to increase FX reserves to USD 6.5 billion in the middle-term.

As for other countries, gold royalty stands at 3 percent in the U.S, 5 percent in Brazil, 4 percent in Indonesia and 2.5 percent in India. This shows that the current 5-10 percent tax is higher than average.

Miners and investors seek favorable tax environment. China, for instance, deduct only CNY1.2-7 per ton of gold depending on the capacity of the mine, technical conditions and locations, as well as 2 percent royalty on import golds.



Published Date:2019-01-11