MANILA(BullionStreet): Large scale gold smuggling continued to hit Philippine's economy as reports said nearly 95 percent of gold trade in the country made through black markets.

Country's central bank, the Bangko Sentral ng Pilipinas, which is required to buy all the gold from local producers as per law, said it get only about 5 percent of gold produced in the country.

Higher tax rates on gold imposed by Philippines forced small scale miners to sell gold elsewhere as the7-percent tax, usually borne by the traders, is imposed on gold sales to the BSP.

Analysts said gold tax, made up of a 5-percent withholding tax and a 2-percent excise tax that the BIR started to enforce last year, was the biggest factor behind the spike in gold smuggling.

The local gold trade is now almost completely in the hands of black market operators and the Philippines' central bank completely powerless to stop it.

Analysts said the central bank has neither the necessary resources nor the mandate to prevent gold smuggling.

Gold smuggled out of the country, much of it going to China via Hong Kong, has resulted in a 95-percent drop in gold purchases by the central bank.

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.

The average gold production in the country is 30 tons per year, 70% of which comes from small-scale miners.

The Philippine data represent only shipments by big mining firms with supply contracts, as exports of gold from small-scale mines are banned.