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 weeks 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 th e 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 Finances (DoF) Fiscal Intelligence Unit) as well as the aud it 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
follow s:

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 busine ss, 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, aft er 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 importers 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 enti rely 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 wo uld 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 intro duced 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 expecte d 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.