THE Bureau of Customs (BOC) recently issued Customs Memorandum Order (CMO) 12-2007 which provides new rules redefining the dutiable value of an imported article as the amount reflected in the Commercial Invoice or in the Import Entry Declaration for shipments under letters of credit (L/C), and that the basis of assessment of duties and taxes for articles shall be based on the entered weight indicated in the Inward Foreign Manifest, Commercial Invoice and the Bill of Lading.
Similar to the previous issuance of customs to adopt minimum values through the issuance of ‘revision orders’, CMO 12-2007 is increasingly becoming a controversial issuance, not only because of attempts by customs to apply the rules retrospectively without the benefit of due process, but also because of the fact that the provisions of the CMO directly conflict with express provisions of the Tariff and Customs Code of the Philippines (TCCP), as amended and previous Customs Administrative Orders (CAOs) issued by the Department of Finance (DOF).
The new issuance is understandable considering customs is currently under pressure to address shortfalls in revenue collection. But what bothers many is that the CMO was not only issued without the usual public consultation but, worse, they conflict with existing customs laws, rules and practices.
Tax and Duty Calculation. Philippine valuation rules presently being implemented by the BOC is the Transaction Value (TV) System, which is intrinsically based on the WTO Agreement on Customs Valuation (Agreement on Implementation of Article VII of the GATT/Customs Valuation 1979). Unlike previous valuation rules which were mostly notional and theoretical, the new international system was established to promote and facilitate trade by ensuring that customs valuation is simple, transparent and predicable. The system was also designed to ensure that governments are able to easily administer the same.
Tax and duty calculation is basically composed of the following factors: (a) dutiable value; (b) quantity; and (c) classification/description and duty rate. Under Section 201 of the TCCP, the dutiable value of an imported article is the transaction value, which shall be the price actually paid or payable for the goods when sold for export to the Philippines.
Stated otherwise, the primary basis for determining the customs value is the price paid or payable (Method 1 – Transaction Value). Under the TV system, there is a strong policy in favor of applying the transaction value to the greatest extent possible, and the grounds for departure should be narrowly construed as much as possible. There are also very few instances for departing from the price paid or payable. Other than the conditions for the acceptability of the transaction value, there are no other grounds for departing from the transaction value.
In relation to quantity, Sections 1701 to 1705 of the TCCP provides the basis for paying duties and taxes only on articles that actually arrived, excluding damaged, missing, deficient or lost articles. In short, the dutiable value is based on what is actually paid or payable while the quantity should be based on what actually arrived, subject to certain customs formalities.
Issues on CMO 12-2007. Many importers are now raising issues with regard to the implementation of the new rules on the assessment of duties and taxes on imported articles.
One, attempts are made to assess additional taxes and duties on importations made prior to the issuance of the CMO, without the benefit of administrative due process provided under the liquidation system or the post entry audit system and contrary to the general rule that laws have prospective application. Under current customs laws and procedures, additional assessments can be imposed on importers through the liquidation and billing divisions of the port concerned or through the post entry audit group. Unfortunately, the additional assessments are being made under questionable procedures.
Second, the conditions provided in the CMO for the application of Section 201, TCCP is by itself not allowed by Section 201. To illustrate, amounts entered in the Import Entry Declaration (IED) upon opening of a Letter of Credit is most likely an indicative price only and may not necessarily be the price actually paid or payable as the import transaction is yet to be finalized. Also, the value as reflected in the invoice is not always the price actually paid or payable, considering that there are certain import costs which are normally not reflected in the invoice but deemed dutiable under Section 201.
Conflicts with the TCCP. Finally, the provision in the CMO prohibiting the payment of duties and taxes based on the actual quantity of articles that arrived contravenes the express provisions in Sections 1701-1705, TCCP pertaining to abatements and refunds. By preventing importers from availing of the benefit of abatement, the CMO, which is an administrative issuance, is inconsistent with the TCCP itself. CMOs can only implement and fill in details on the policy directives of legislative acts (e.g. TCCP) and executive issuances (e.g. CAOs issued by the DOF). CMOs can not amend legislative acts or executive issuances. Unfortunately, CMO 12-2007 now seeks to amend certain provisions of the TCCP without going through the legislative mill.
The author is an international trade and customs consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax, customs and supply chain. Please contact email@example.com for your comments.