IMPORTERS, customs brokers and forwarders normally encounter problems clearing air shipments with customs due to discrepancies in the computation of duties and taxes arising from variances in air freight charges provided in the House Air Way Bill (HAWB) issued by the freight forwarder/consolidator to the consignee/importer as against charges provided in the Master Air Way Bill (MAWB) issued by the air carrier to a consolidator or freight forwarder.
The MAWB normally indicates higher charges as against charges provided in the HAWB and in many instances, customs will compute the duties and taxes based on the air freight charges in the MAWB.
The question for many is which air freight charge is valid for purposes of computing the taxes and duties on the imported article? What are the relevant customs laws and rules on the subject matter?
Background – Customs Valuation. The basis for computing the taxes and duties is basically the CIF (Cost, Insurance and Freight) or CIP (Carriage and Insurance Paid ToÉ) invoice value of the imported article. The CIF or CIP terms of trade (INCOTERMS 2000) normally involve the cost of the goods plus freight and insurance charges. In other words, the dutiable value is the transaction value, plus the cost of insurance and freight, if not yet included in the price paid or payable.
Under Section 201 of the Tariff and Customs Code (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).
RA 9135 and its implementing rules (CAO 5-2001 as amended by CAO 4-2004) provide that in determining the transaction value, certain adjustments may be made to the price actually paid or payable for the imported goods being valued. These adjustments are as follows: (a) commissions and brokerage fees (except buying commissions); (b) cost of containers; (c) cost of packing; (d) assists; (e) royalties and license fees; (f) subsequent proceeds that directly or indirectly accrue to the supplier; (g) cost of transport to the port of entry; (h) loading and handing charges to the port of entry; and (i) cost of insurance. Additions to the price paid or payable, however, must be actually incurred before they could be considered as part of the dutiable value.
Considering that among the additions mentioned above, it is typically the insurance and freight costs which are reflected in the invoice and as such, customs has in practice considered the CIF or CIP value as the basis for computing the taxes and duties.
Tax and Duty Computation Technique. The general formula for computing the taxes and duties on an imported article is provided below.
| Dutiable Value (DV) | (CIF value plus other additions, if applicable) |
| Plus: | |
| Customs Duties | DV x duty rate |
| Bank Charges | DV x .00125 |
| Brokerage Fee | Per CAO 1-2001 |
| Arrastre Charge | Per CMO 28-95 |
| Wharfage Due | Per CMO 28-95 |
| Documentary Stamps | Php265.00 |
| Import Processing Fee | Per CAO 2-2001 |
| Total | Landed Cost |
| VAT rate | 12% |
| VAT Payable | LC x VAT rate |
With the dutiable value generally based on the CIF or CIP invoice value, what then is the freight charge to be used in case there is a variance in the charges reflected in the MAWB and the HAWB?
Freight Charges as Actually Incurred. Under Section 201, TCCP, additions to the transaction value as incurred by the importer must be made only “on the basis of objective and quantifiable data”. In principle therefore, the freight charge to be used for arriving at the dutiable value should be the actual charge paid by the importer, which is in practice reflected in HAWB and not in the MAWB.
To further clarify this issue, Customs Memorandum Order (CMO) No. 21-2003 (Supplemental Guidelines in the Determination of Air Freight Charges) provides the guidelines in the determination and application of air freight charges as a component of the dutiable value for customs purposes.
In particular and in case there is discrepancy in the freight charges provided in the MAWB and HAWB, CMO 21-2003 states that the air freight charges to be applied shall be based on the following:
- The freight charges indicated in the Official Receipt issued by the air carrier;
- The freight charges paid as certified by the carrier/consolidator on its stationery; and
- The amount indicated in the consolidated manifest as freight charges, provided, however, that the individual freight charges are indicated in the different HAWBs.
