Changes under the Customs Modernization and Tariff Act: An Overview On 30 May 2016, President Benigno Benigno S . C. Aquino III signed Republic Act (RA) No. 10863, otherwise known as the Customs Modernization and Tariff Act (CMTA), which amends the Tariff and Customs Code of the Philippines (TCCP). It will become effective effective on 16 June 2016 which is 15 days after it was published in a major daily newspaper. From a historical perspective, the first piece of tariff legislation was passed by the United States Congress for the Philippines during the American regime. This was known as the Philippine Tariff Tariff Act of 1909 whi ch gave birth to the imposition of tariff on goods coming from foreign countries and entering the Philippines. In 1957, RA No. 1937 was crafted and passed by the Philippine Congress Congress as the first TCCP that codified customs laws for the country, superseding the 48-year colonial regime of the Tariff Act of 1909. It took effect on 1 July 1957. Certain provisions of the TCCP eventually became obsolete, and were updated through various presidential decrees issued by Former President Marcos, as Chief Executive who, during the Martial Law regime, exercised the powers of Congress. In 1972, Presidential Decree (PD) No. 34 consolidated into one Code all amendments made therein. On 11 June 1978, RA No. 1464 was signed into law (revising PD No. 34), which, in general, strengthened the punitive force of the TCCP against smuggling and other forms of customs fraud. Many changes in global and regional trade policies, policies, rules and processes have since then developed and evolved which have been addressed (through legislative legislativ e amendments of the TCCP and administrative issuances) on a piecemeall basis. piecemea The new CMTA aims to modernize customs laws, rules and procedures to take into consideration the mandatory standards of the Revised Kyoto Convention Conventio n (the blueprint for modern and efficient customs procedures of the World Customs Organization [WCO] to which the Philippines is a signatory), international agreements, recommendations from the business sectors and industry groups as well as s ome of the best practices in customs administration, among others. It seeks to transform the Bureau of Customs (BoC) into a modern and efficient organization that is at par with global standards.
The CMTA has both saving and repealing clauses. Laws, rules and regulations previously issued pertaining to the importation of goods that are consistent with the CMTA will remain valid unless the same be repealed or amended. While those which are inconsistent are expressly repealed, amended or modified accordingly. This series of articles will point out some of the salient changes introduced under the CMTA. GOODS DECLARATION FOR CONSUMPTION Allll i m po rt e d go od s wi ll be s u bj ec t t o th e lo dg me n t of a g oo ds de cl ar at i on A (commonly known as entry declaration), declaration), which may be for consumption, for warehousing, for admission, for conditional importation importation or for customs transit, depending depending on the purpose. A s a ge n er al ru le , g oo ds de cl ar at i on s f or c on s um p ti on ar e cl ea re d th ou gh a As “f or m al en tr y ” pr oc es s , ex ce p t in th e f ol l ow in g i n s t an ce s wh e re g oo ds m ay be cleared through “informal entry”: (i) goods of a commercial nature with Free on Board or Free Carrier Arrangement (FCA) value of less than Php 50,000 (which is an increase from the previous thresholds of Php 2,000 per TCCP, as amended, and USD 500 under Customs Memorandum Order Order No. 13 2010); or (ii) personal or household effects or goods, not in commercial quantity, imported in passenger’s baggage or mail. A g oo ds de cl a r a ti on mu s t n o w be l od ge d wi th i n 1 5 da y s ( pr ev i ou s l y, 30 -d ay non-extendible period) from a BoC notice (sent through electronic or personal service) informing the importers of the date of discharge of the last package from the vessel or aircraft, extendible extendible for another 15 days (upon request by the importer based on valid grounds). Once lodged, the BoC, after its examination, shall issue a notice of assessment (of duties and taxes payable). The importer has a period of 15 days from receipt of said notice within which to pay the corresponding duties and taxes. In effect, this is also the period within which the importer may contest the assessment issued by the BoC at the border. Otherwise, the assessment will be deemed final after the lapse of the 15- day period. The failure to pay duties and taxes within the 15-day period shall result in the imposition of a 10% surcharge (increased to 25% if delinquenc delinquency y lasts for more than one year) based on the total assessed amount or balance thereon as well as to a 20% interest per annum computed from the date of final assessment. A ft e r p ay m en t of du ti es an d ta x es , th e i m po rt er wi ll th en h a ve a n on Aft extendible extendi ble period of 30 days (previousl (previously, y, 15 days from posting of notice to claim) to claim the goods from customs custody.
If, at the time of importation, an importer does not have all the information or supporting documents required to complete a goods declaration, the CMTA now allows the lodging of a provisional goods declaration (PGD). The PGD is a new concept that importers can use particularly in instances where additional information and/or collateral documents are required to be submitted at the border. Under this concept, an importer would have to execute an undertaking to complete the necessary information or submit the supporting documents documents within 45 days (extendible for another 45 days) from the lodging of the PGD. Goods under PGD may be released upon posting of a security equivalent to the amount ascertained to be the applicable duties and taxes. A n as s es s m en t by th e Bo C at th e bo rd e r of a PG D s h al l be de em ed te n ta ti v e An and shall be completed upon final readjustment and submission of the additional information or documentation required to complete the declaration. If an importer needs to amend a goods declaration already filed, the CTMA, for valid reasons and with the approval of the BoC, also permits the filing of an amended goods declaration. The amendment, however, must be done prior to final assessment or examination of the goods by the BoC. This article will continue to discuss the changes introduced in the CMTA. DE MINIMIS IMPORTATIO IMPORTATIONS NS The CMTA acknowledges the e-commerce trend of increasing number of small value consignments and thus, retained the provision on de minimis values (small value importations) below which no duties and taxes will be collected collecte d and with minimal clearance procedures, including data requirements. The de minimis threshold value has now been increased to Php10,000 (previously, (previousl y, Php10) in response to the clamor of foreign business groups. Thus, if the value of an importation does not exceed Ph10,000, there will be no duties and taxes that will be collectible by the BoC. This threshold value is subject to review by the Finance Secretary every three years. RELIEF CONSIGNMENT Goods such as food, medicine, equipment and materials for shelter, donated or lease to government institutions and accredited private entities for free distribution distribut ion to or use of victims of calamities shall be treated as relief consignment. Relief Relief goods are exempt from duties and taxes.
Upon declaration of a state of calamity, the clearance of such goods will be a matter of priority. Towards this end, restrictions on customs policies are now relaxed under the CMTA. Special procedures are now provided to facilitate their unimpeded entry. Among these procedures procedures are: a) lodging of a simplified or provisional goods declaration; b) pre-arrival clearance; c) clearance beyond business hours without corresponding charges; and d) examination shall be in exceptional except ional cases only. The Department of Finance (DoF) and the Department of Social Welfare and Development Developm ent shall jointly issue implementing rules on this. CONDITIONALLY-FREE AND DUTY-EXEMPT IMPORTATIONS CONDITIONALLY-FREE The CMTA introduces modifications to Section 105 of the TCCP, as amended, on conditionally-free importations importations (now named conditiona conditionally-free lly-free and dutyfree importations under Section 800). One of the more well-known privileges recognized under Section 800 is the duty and tax-free importation of personal and household effects by “r et u rn in g r es id en ts ” wh i ch h as be en de fi n ed as n a ti on al s w h o h av e s t ay ed in a foreign country for a period of at least six months. The conditions for exemption (aside from the requirements that the same should neither be of commercial quantity nor intended for barter, sale or hire) are as follows: · For those who have stayed in a foreign country for a period of at least 10 years, the Free on Board (FoB) or Free Carrier Arrangement (FCA) value shall not exceed P350,000 and that the privilege is not availed of within 10 years prior to the returning resident’s arrival. · If the stay is at least five years, the FCA or FOB value shall not exceed P250,000 and that the privilege is not availed of within five years prior to the returning resident’s arrival. · If the stay is less than five years, the FCA or FoB value shall not exceed P150,000 and that the privilege is not availed of within six months prior to the returning resident’s arrival. In addition to the above, returning Overseas Filipino Workers (OFWs) shall have the privilege to bring in tax and duty free home appliances and other durables (limited to one of every kind) once in a given calendar year accompanying them on their return or arriving within a reasonable time (not exceeding exceedi ng 60 days after every returning OFWs return).
Residents of the Philippines, OFWs or other Filipinos, while residing abroad or upon their return to the Philippines, are also allowed to bring in or send to their families or relatives in the Philippines “balikbayan boxes” (containing personal and household effects only) duty and tax-free, provided that the FCA value shall not exceed P150,000 and the items are not in commercial quantities or intended for barter, sale or for hire. This can be availed up to three times in a calendar year. A ny am ou n t i n ex ce s s of th e a bo ve th re s h ol d va l ue s s h a ll , h ow ev er , be Any subject to duties and taxes. In addition to the above, the CMTA also provide providess the following changes: RELATED PARTY TRANSACTI TRANSACTIONS ONS The CMTA upholds the hierarchical application of the six methods of valuation of imported goods, with Method 1 or the Transaction Value (TV) of the imported i mported goods being the primary method. The TV is basically the “price paid or payable” for the goods when sold for export to the Philippines, subject to certain adjustments such as selling commissions and brokerage fees, cost of containers, cost of packing, assists, royalties and license fees, cost of transport and insurance, among others. Under the rules, one of the limitations on the application of the TV method is that, in cases of a related party transaction, the price between the importer and its related foreign supplier should not be influenced by such a relationship. The CMTA states that in order to prove the absence of such influence, the importer must be able to demonstrate that the declared value closely approximates approximates one of the following “test values” occurring at or about the same time: · The TV in sales to unrelated buyers of identical or similar goods for export to the same country of importation; · The customs value of identical or similar goods as determined using the Deductive Deductiv e Value Method; and · The customs value of identical or similar goods as determined using the Computed Value Method. A s id e f ro m th e ap pl i ca ti o n of te s t v a lu es , th e WT O a gr ee me n t al s o As recognizes recogniz es the “circumstances of sale analysis” as a remedy in proving the absence of such influence. This remedy, which is likewise embodied embodied under Customs Administrative Order Order (CAO) No. 4-2004 and Customs Memorandum Order (CMO) No. 16- 2010, involves showing the arm’s length nature of the transaction transactio n by proving that the price was:
· Settled in accordance with normal pricing practices of the industry; · Settled in a manner consistent with sales to unrelated buyers; · Adequate to ensure recovery of all costs plus a profit equivalent to the firm’s overall profit realized over a representative perio d of time in sales of goods of the same class or kind. Failure to establish either of the above proofs may result in the declared TV to be rejected for purposes of customs appraisement and the price will be determined determin ed using other methods of valuation in their sequential order. MISDECLARATION, MISCLASSIFICATION, UNDERVALUATION IN GOODS DECLARATION The CMTA has increased the surcharge penalty for misdeclaration, misclassification misclassificat ion and undervaluatio undervaluation n of imported goods. There is misdeclaration when the discrepancy pertains to quantity, quality, description, descript ion, weight, or measurement of the imported goods. Misclassification, on the other hand, exists when insufficient or wrong Misclassification, description of the goods or use of wrong tariff heading was declared resulting in a discrepancy. Undervaluation Undervaluat ion is present when: · The declared value fails to disclose in full the price actually paid or payable or any dutiable adjustment to the price; or · When an incorrect valuation method is used; or · The valuation rules are not properly observed. A ny m is de cl ar at i on , mi s cl as s i f i c at i on or u n de rv al u a ti on of i m po rt e d go od s Any resulting in a discrepancy (in duty and tax to be paid) between what is legally determined upon assessment and what is declared will be subject to a fixed surcharge rate of 250% of the duty and tax due (previousl (previously, y, 100% to 200% of the duty due). Surcharge, however, will not be imposed when: · The discrepancy in duty is less than 10%; or · The importer’s declared value and/or tariff heading/classification: · Relied on an official government ruling; or · Is rejected in a formal customs dispute settlement process involving difficult or highly technical questions relating to the application of customs valuation rules and/or tariff classifications. If the misdeclaration, misclassification or un dervaluatio dervaluation n is intentiona intentionall or fraudulent (such as when a false or altered document is submitted or when
false statements or information are knowingly made), a 500% surcharge (of the duty and tax due) will be imposed on the importer and to those who willfully participated in the fraudulent act. The imported goods will be subject to seizure regardless of the amount of the discrepancy. The CMTA likewise adopts the previous rule under the TCCP, as amended, on the existence of a prima facie evidence of fraud if the discrepancy (in duty and tax to be paid) amounts to more than 30%. UNLAWFUL IMPORTATION OR EXPORTATIO EXPORTATION N The CMTA provides stiffer penalties for smuggling (which can either be outright or technical) which has been defined as the fraudulent act of importing any goods into the Philippines, or the act of assisting in receiving, concealing, buying, selling, disposing or transporting such goods, with full knowledge that the same has been fraudulently imported. It likewise includes the exportation exportation of goods in any m anner contrary to law. Outright smuggling refers to the act of importing goods into the country without complete customs-prescribed importation documents, or without being cleared by customs or other regulatory government agencies. In this case, imported goods are not registered at all with the BoC or other government agencies. Technical smuggling, on the other hand, refers to the act of importing goods into the country by means of a fraudulent, falsified or erroneous declaration declaration of the goods as to its nature, kind, quality, quantity or weight. In other words, technical smuggling takes place through undervaluation, misclassification misclassificat ion or underdec underdeclaration laration of the goods shipped. The difference difference between outright smuggling and technical smuggling lies in the use or non-use of legal trade channels when bringing the goods into the country. Outright smuggling bypasses the usual and normal procedure and process of clearing the cargo at the BoC, while technical smuggling involves fraudulent acts during the processing and releasing of the goods. In both instances, however, the ultimate objective is to evade the payment of the prescribed prescribe d taxes, duties and other charges. The penalty is imprisonment or a fine which ranges from Php 25,000 to Php 50,0000,000 depending on the value (up to Php 200,000,000) of the goods unlawfully imported, including duties and taxes. If the value (or aggregate value) exceeds exceeds Php 200,000,000, the same shall be deemed as a heinous crime punishable with a penalty of reclusion perpetua (imprisonment of 20 years and 1 day to 40 years) and a fine of not less than Php 50,000,000.
Each act of unlawful importation or exportation shall be deemed a separate offense. In the fourth part of this article, we will discuss other changes introduced under the CMTA, particularly the new rules relating to abandonment, period of storage in a Customs Bonded Warehouse, advance customs rulings, post clearance audit, record keeping requirements requirements and penalties. This article will continue to discuss the changes un der the CMTA. AB AN D ON ME N T R U LE S The abandonment of imported goods can either be express or implied. A n ex pr es s a ba n do n m en t oc cu rs wh en a n i m po r te r ex pr es s l y s i gn i fi es in An writing to the District Collector of his intention to abandon the imported goods. In such case, the goods shall ipso facto be deemed property of the Government and may be sold or disposed of generally at the port where the goods are located. On the other hand, there is implied abandonment, in the following cases, among others: · When an i mporter fails to file the goods declaration within 15 days (previously, a 30-day non-extendible period) or within the approved extended period of another 15 days from notice of the date of discharge of the last package from the vessel or aircraft; · Having filed such a declaration, the importer fails to pay the assessed duties and taxes within 15 days from receipt of notice notice of final assessment; · Failure to claim the goods within 30 days (previo (previously, usly, 15 days) from payment of duties and taxes. If the BoC has not disposed of the goods implied to be abandoned, the owner or importer of goods may, within 30 days after the lapse of the prescribed period to file the declaration (15 days, extendible for another 15 days), still reclaim the goods by complying with all legal requirements requirements and paying the corresponding duties, taxes, and other charges. On the other hand, if the BoC has already sold the goods, the proceeds of the sale, after deduction of any duty and tax and all other charges and expenses (such as, government storage charges; expenses for the appraisal, advertisement, and sale of auctioned goods; arrastre and private storage charges and demurrage charges; and freight, lighterage or general average, on the voyage of importation) shall be turned over to those persons entitled to receive them. The balance will then be deposited to a “forfeiture fund” to be managed by the BoC which shall be used to, among others, support its
modernization program and other operational efficiency and trade facilitation initiatives. PERIOD OF STORAGE IN A CUSTOMS BONDED WAREHOUSE (CBW) The general rule under the CMTA is that goods entered for warehousing may remain in a CBW for a fixed period of one year from the time of their arrival, except for perishable goods where the storage period is three months from the date of arrival, extendible (for valid reasons and upon written request) for another three months. This is a departure from the current rule which fixes the storage period in a CBW to a maximum one year period, regardless of whether the goods are perishable or not. Goods not withdrawn after the expiration expiratio n of the prescribed period shall be deemed abandoned. The BoC Commissioner, in consultation with the Secretary of Trade and Industry, shall also establish reasonable storage period limits beyond the general one-year period for bonded goods, the processing into finished goods of which require a longer period based on industry standards and practice, subject subject to the approval of the Secreta Secretary ry of Finance. The unauthorized withdrawal withdrawal of imported goods from the CBW shall be subject to a surcharge of 50% of duties, taxes, customs fees and charges, found to be due and unpaid. If the delinquency lasts for more than one year, the surcharge shall be increased increased by 25% of the unpaid duties and t axes annually. SELF-CERTIFICATION SYSTEM FOR ORIGIN PURPOSES SELF-CERTIFICATION While the BoC may (upon request) determine the Philippine origin of goods for export through the issuance of certificates of origin, the CMTA, in preparation for the ASEAN-wide implementation of the self-certification system, allows exporters (producers or manufacturers of goods) duly accredited by the BoC to perform a “self “self - certification” procedure as an alternative alternati ve means of proving the Philippine origin of goods for export. The introduction of a self-certi self-certification fication arrangement (in establishing the origin of Goods) plays a critical role in achieving a free flow of goods within the ASEAN single market as it is aimed at facilitating the utilization of Free Trade Agreements (FTAs). The system effectively eliminates the need to present a Certificate of Origin (CO) to claim preference under FTAs as it allows accredited exporters to self-declare that their products have satisfied the ASEAN origin criteria by simply affixing a declaration on the commercial invoice. This new system seeks to reduce compliances of exporters and administrative cost associated with CO application. It likewise facilitates the release of shipments availing of preferential tariff under FTAs.
AD VA NC E CU ST OM S RU LI N GS Importers (and exporters) oftentimes are faced with issues such as whether certain payments to suppliers are dutiable or not, whether an article would fall under an identified specific tariff heading or another, or whether rules of origin requirements to qualify for the availing the preferential rates under FTAs are met. Potentially, these issues may lead to uncertainty in the entire trade transaction as these will have an impact on the amount of duties to be paid and ultimately, on the end price of the product. In order to promote higher certainty, predictability and reliability, the CMTA now adopts the Revised Kyoto Convention (RKC) provision on advance (binding) rulings and recognizes the right of importers and exporters, upon written writte n application, to seek advance rulings on classification from the Tariff Commission, and valuation as well as rules of origin from the BoC Commissioner. These rulings, once obtained, should provide applicants with more certainty on the customs treatment of their specific transaction or product. Rulings are required to be issued within 30 days from receipt of the application and supporting documents documents as may be required by regulation. In addition to the above, the CMTA also provide providess the following changes: POST-CLEARANCE AUDIT POST-CLEARANCE The CMTA states that the Bureau of Customs (BoC) may conduct a “post “post-clearance audit” within three years from the date of final payment of duties and taxes or customs clearance, as the case may be. In the absence of any specific regulation, regulation, this provision of the CMTA can be se en as a departur departure e from Executive Order 155 (which placed the audit function with the Department of Finance’s (DoF) Fiscal Intelligence Unit) as well as the audit guideliness under DoF Department Order (DO) Nos. 11 -2014 and 44-2014. guideline The penalties for failure to pay correct duties and taxes on imported goods, as may be found during post-clearance audit, are now categorized into two degreess of culpability, as follows: degree This is a departure from the previous degrees of penalties; (a) negligence (50% to 200% of the revenue loss); (b) gross negligence (250% to 400% of the revenue loss); and (c) 500% to 800% of the revenue loss and/or criminal prosecution. Furthermore, under the CMTA, no substantial penalty shall be imposed on Furthermore, inadvertent inadvert ent errors amounting to simple ne gligence as will be defined by the implementing implement ing rules. This rule was lifted from Standard 3.39 of the Revised Kyoto Convention (RKC) as well as from Article VIII of the World Trade
Organization/General Agreement on Tariffs and Trade (WTO/GATT), providing for the non-imposition of penaltie penaltiess for errors when such errors are inadvertent and where there has been no fraudulent intent or gross negligence. A pe n al ty , wh i ch s h ou ld n ot be ex ce s s i v e, m ay h o we ve r be i mp os e d in o rd er to discourage a repetition of such errors. RECORD-KEEPING REQUIREMENT The CMTA states that all importers are required to keep relevant importation documents, at their principal place of business, for a period of three years from the date of final payment of duties and taxes or customs clearance, as the case may be. This provision of the CMTA can be seen as a reversion to the old rules and a departure from the audit guidelines under DoF DO Nos. 11-2014, which set the record retention period to 10 years from the date of importation. Economic zone locators are likewise required to keep records of imported goods withdrawn from the zones and brought into the customs territory. If an importer who, after receiving a lawful demand in writing, fails or refuses to produce relevant records, accounts or invoices necessary to determine determin e and assess the correct value and classificatio classification n of the imported goods at the border, the CMTA empowers a District Collector to impose a 20% surcharge based on the dutiable value of such goods. On the other hand, if during post clearance audit, it was determined that an importer auditee failed to keep the required records of importation, the penalty that could be imposed by the BoC is a fine of P1,000,000 (previously, a fine of not less than P100,000 but not more than P200,000) and/or imprisonment of not less than three years and one day but not more than six years (previously, imprisonment of not less than two years and one day to six years). Furthermore, the failure shall constitute a waiver of the importer’s right to contest the results of the audit based on records kept by the BoC. AU T HO R IT Y O F T HE C O MM IS S IO NE R TO MA KE C O MP R OM I SE Under the CMTA, the Commissioner may, subject to the further approval of the Finance Secretary, compromise any administrative case involving the imposition of fines and surcharges, including those arising from the conduct of a post clearance audit, unless otherwise specified by law. Although not an entirely new concept, it nevertheless specifically mentions that the compromise powers powers of the Commissioner include fines and surcharges ar ising from a post clearance audit. This is a welcome reintroduction reintroduction of a voluntary
disclosure concept for importers who would want to correct their mistakes by voluntarily settling their deficiencies deficiencies in duties and taxes. Cases involving forfeiture forfeiture of goods shall, however, not be subject to any compromise. AP P LI CA T IO N OF IN F OR M AT IO N AN D CO M MU N IC AT I ON S TECHNOLOGY TECHNOLOG Y (ICT) The BoC, in accordanc accordance e with international standards, is m andated under the CMTA to utilize ICT in enhancing customs control and efficiency in customs operations geared towards a paperless customs environment. Electronic documents, permits, licenses or certificates will now be acceptable and will have the legal effect, validity or enforceability as any other document or legal writing. The utility of full automation will be felt once the “Single Window Policy” is fully implemented. MOVING FORWARD The provisions introduced under the CMTA are basically trade facilitation measures envisioned to hasten, simplify, harmonize and clarify importation importation and exportation laws, rules and procedure procedures. s. These changes provide an opportunity for the BoC to effectively implement these new rules towards achieving its primary role as a trade facilitation facilitation institution. A simplified and streamlined trade procedure could result in higher volume of trade which will positively impact on revenue collection. Importers, on the other hand, are expected to keep abreast of these developments in order to avoid unnecessary cost (in terms of fines, surcharges and other penalties) on their importations resulting from noncompliance.
