Overview of changes under the Customs Modernization and Tariff Act

SUITS THE C-SUITE By Mark Anthony P. Tamayo

Business World (07/04/2016 – p.S1/4)

(Last of 5 parts)

In last week’s article, we listed down some of the changes introduced under the new Customs Modernization and Tariff Act (CMTA), particularly on 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.

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 seen as a departure from Executive Order 155 (which placed the audit function with the Department of Finance’s (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:

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 inadvertent errors amounting to simple negligence as will be defined by the implementing 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 penalties for errors when such errors are inadvertent and where there has been no fraudulent intent or gross negligence.

A penalty, which should not be excessive, may however be imposed in order 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 and assess the correct value and classification 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.

AUTHORITY OF THE COMMISSIONER TO MAKE COMPROMISE

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 of the Commissioner include fines and surcharges arising from a post clearance audit. This is a welcome reintroduction of a voluntary disclosure concept for importers who would want to correct their mistakes by voluntarily settling their deficiencies in duties and taxes.

Cases involving forfeiture of goods shall, however, not be subject to any compromise.

APPLICATION OF INFORMATION AND COMMUNICATIONS TECHNOLOGY (ICT)

The BoC, in accordance with international standards, is mandated 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 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 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 non-compliance.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessary represent the views of SGV & Co.

Mark Anthony P. Tamayo is a Partner of SGV & Co. and currently the Indirect Tax Country Leader and Head of the Global Trade & Customs practice of the firm.