SALIENT FEATURES OF CUSTOMS MODERNIZATION AND TARIFF ACT

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 which 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 efficient 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unless the same be repealed or amended.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
entry”: (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 electronic 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 contest 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 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 released 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.
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 by 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 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 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 this.

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.

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
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 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 limits 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 eliminates
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 classification
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.

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.