Changes under the Customs Modernization and Tariff Act:

An Overview
SUITS THE C-SUITE By Mark Anthony P. Tamayo

(First of 5 parts)
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.

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, 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.
GOODS DECLARATION FOR CONSUMPTION
All imported goods will be subject to the lodgment of a goods declaration
(commonly known as entry declaration), which may be for consumption, for
warehousing, for admission, for conditional importation or for customs
transit, depending on the purpose.

As a general rule, goods declarations for consumption are cleared though a

“formal entry” process, except in the following instances where goods may
be cleared through “informal ent ry”: (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 No.
13-2010); or (ii) personal or household effects or goods, not in commercial
quantity, imported in passenger’s baggage or mail.

A goods declaration must now be lodged within 15 days (previously, 30 -day

non-extendible period) from a BoC notice (sent through el ectronic or
personal service) informing the importers of the date of discharge of the
last package from the vessel or aircraft, 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 c ontest 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 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 hav e 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 r eleased upon
posting of a security equivalent to the amount ascertained to be the
applicable duties and taxes.

An assessment by the BoC at the border of a PGD shall be deemed tentative

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.
In the second part of this article, we shall discuss more of the changes
introduced under CMTA, particularly the new rules on relief importations,
the increase in the threshold value of an informal goods declaration as well
as those considered as small value importations.

(Second of 5 parts)
In last week’s article, we discussed the evolution of the Tariff and Customs
Code of the Philippines (TCCP) and briefly talked about the new rules on
goods declaration under the new Customs Modernization and Tariff Act
(CMTA).

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 procedures, including data
requirements.

The de minimis threshold value has now been increased to Php10,000

(previously, 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 b y 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 entiti es 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 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 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 cases only.

The Department of Finance (DoF) and the Department of Social Welfare and
Development shall jointly issue implementing rules on thi s.

CONDITIONALLY-FREE AND DUTY-EXEMPT IMPORTATIONS

The CMTA introduces modifications to Section 105 of the TCCP, as amended,
on conditionally-free importations (now named conditionally -free and duty-
free 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
“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 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 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.

Any amount in excess of the above threshold values shall, however, be

subject to duties and taxes.

In the third part of this article, we shall discuss other changes brought
about by the CMTA, particularly the rules on related -party transactions and
penalties relating to unlawful importation and exportation, misdeclaration,
misclassification and underdeclaration of imported goods.

(Third of 5 parts)
In last week’s article, we discussed some of the changes introduced under
the new Customs Modernization and Tariff Act (CMTA), particularly the new
threshold value of those considered as small value importations, the rules
on relief consignments, and personal and household effects (including
appliances and durables) brought in by returning residents and Overseas
Filipino Workers (OFWs).

In addition to the above, the CMTA also provides the following changes:

RELATED PARTY TRANSACTIONS

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 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 ab sence of such
influence, the importer must be able to demonstrate that the declared value
closely 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 Value Method; and
· The customs value of identical or similar goods as determined using the
Computed Value Method.

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 arm’s 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
firm’s overall profit realized over a representative period of time in sales of
goods of the same class or kind.

Failure to establish either of the above proofs may result i n the declared TV
to be rejected for purposes of customs appraisement and the price will be
determined 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 and undervaluation of imported goods.

There is misdeclaration when the discrepancy pertains to quantity, quality,

description, weight, or measurement of the imported goods.

Misclassification, on the other hand, exists when insufficient or wrong

description of the goods or use of wrong tariff heading was declared
resulting in a discrepancy.

Undervaluation 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.

Any misdeclaration, misclassification or undervaluation of imported goods

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 (previously, 100%
to 200% of the duty due).

Surcharge, however, will not be imposed wh en:

· 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 undervaluation is intentional or

fraudulent (such as when a false or altered document is submitted or wh en
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 EXPORTATION

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 of goods in any manner 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
of the goods as to its nature, kind, quality, quantity or weight. In other
words, technical smuggling takes place through un dervaluation,
misclassification or underdeclaration of the goods shipped.

The 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 bypa sses 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 paymen t
of the prescribed 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 v alue (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.

(Fourth 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 th e rules
pertaining to related party transactions as well as the penalties relating to
unlawful importation and exportation, misdeclaration, misclassification and
underdeclaration of imported goods.

This article will continue to discuss the changes under th e CMTA.

ABANDONMENT RULES
The abandonment of imported goods can either be express or implied.

An express abandonment occurs when an importer expressly signifies in

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 importer 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 of final assessment;
· Failure to claim the goods within 30 days (previously, 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 r equirements 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 stora ge 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 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 lim its 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 to the approval of the Secretary of Finance.

The unauthorized 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 by 25% of the unpaid duties and
taxes annually.

SELF-CERTIFICATION SYSTEM FOR ORIGIN PURPOSES

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-certification” procedure as an
alternative means of proving the Philippine origin of goods for export.

The introduction of a self-certification 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 eli minates 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.

ADVANCE CUSTOMS RULINGS

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 application, to seek advance rulings on cla ssification 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 as may be required by regulation.

In the last part of this article, we will discuss the new rules on penalties
that the BoC can impose resulting from post clearance audit, record keeping
requirements, and the authority of the BoC Commissioner to compromise
any administrative case involving the imposition of fines and surcharges.

(Last of 5 parts)
In last week’s article, we listed down some of the changes int roduced 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 Un it) 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 D istrict 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. A lthough 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.