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Overview
On 30 May 2016, President 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 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 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 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.
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, rules and processes have
since then developed and evolved which have been addressed (through
legislative amendments of the TCCP and administrative issuances) on a
piecemeal basis.
The new CMTA aims to modernize customs laws, rules and procedures to
take into consideration the mandatory standards of the Revised Kyoto
Convention (the blueprint for modern and efficie nt 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 some 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with the CMTA will remain valid unless the same be repealed or amended.
While those which are inconsistent are expressly repealed, amended or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.
The failure to pay duties and taxes within the 15 -day period shall result in
the imposition of a 10% surcharge (incre ased to 25% if delinquency 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.
After payment of duties and taxes, the importer will then have a non-
extendible period of 30 days (previously, 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 within 45 days (extendible for another 45 days) from
the lodging of the PGD. Goods under PGD may be re leased upon posting of a
security equivalent to the amount ascertained to be the applicable duties and
taxes.
This article will continue to discuss the changes introduced in the CMTA.
DE MINIMIS IMPORTATIONS
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 and with minimal clearance proced ures, including data
requirements.
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 to or use of victims of calamities shall be treated as relief
consignment. Relief goods are exempt from duties and taxes.
Upon declaration of a state of calamity, the clearance of such goo ds 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 are: a) lodging of a simplified or provision al
goods declaration; b) pre -arrival clearance; c) clearance beyond business
hours without corresponding charges; and d) examination shall be in
exceptional cases only.
The Department of Finance (DoF) and the Department of Social Welfare and
Development shall jointly issue implementing rules on this.
One of the more well-known privileges recognized under Section 800 is the
duty and tax-free importation of personal and household effects by
returning residents which has been defined as nationals who have stayed
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 countr y 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 residents 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 residents 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 residents arrival.
In addition to the above, the CMTA also provides the following changes:
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 one of the following test val ues occurring at or about
the same time:
Aside from the application of test values, the WTO agreement also
recognizes the circumstances of sale analysis as a remedy in proving the
absence of such influence. This remedy, which is likewise embodied under
Customs Administrative Order (CAO) No. 4 -2004 and Customs Memorandum
Order (CMO) No. 16-2010, involves showing the arms length nature of the
transaction 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
firms 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 using other methods of valuation in th eir sequential order.
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 obse rved.
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%.
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
of the goods as to its nature, kind, quality, quantity or weight. In other
words, technical smuggling takes place through undervaluation,
misclassification or underdeclaration of the goods shipped.
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 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 and penalties.
This article will continue to discuss the changes un der the CMTA.
ABANDONMENT RULES
The abandonment of imported goods can either be express or implied.
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 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 p ersons 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.
In addition to the above, the CMTA also provides the following changes:
POST-CLEARANCE AUDIT
The CMTA states that the Bureau of Customs (BoC) may conduct a 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, this provision of the CMTA can be se en as a departure
from Executive Order 155 (which placed the audit function with the
Department of Finances (DoF) Fiscal Intelligence Unit) as well as the audit
guidelines under DoF Department Order (DO) Nos. 11 -2014 and 44-2014.
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
degrees of culpability, as follows:
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.
On the other hand, if during post clearance audit, it was determin ed 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
importers right to contest the results of the audit based on records kept by
the BoC.
MOVING FORWARD
The provisions introduced under the CMTA are basically trade facilitation
measures envisioned to hasten, simplify, harmonize and clarify importation
and exportation laws, rules and procedures. These changes provide an
opportunity for the BoC to effectively implement these new rules towards
achieving its primary role as a trade facilitation institution. A simplified and
streamlined trade procedure could resu lt in higher volume of trade which will
positively impact on revenue collection.