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By Annie Ruth C. Sabangan, Senior Reporter
(Conclusion)
TWO years ago Aling Lina’s fruit stand was
supplied with 50 kilos of mangoes that earned her P1,500. In 2003
the mango supply increased to 80 kilos, which she sold for a profit
of P1,000. This year Aling Lina would be supplied with 100 kilos,
which would make her earn only P900.
While the supply of mango increases, Aling
Lina’s profit from its sale decreases. Two years ago the profit
from a kilo of mango was P30; in 2003 it was P12.50; and this year
it would be only P9.
This example of eroding profit in comparison
with a continuous increase in supply illustrates the relationship
between the revenue collection of the Bureau of Customs and the
total value of imports from 1995 to 2002 and from January to
September 2003.
Data from the National Statistics Office (NSO)
indicate that the Customs collection failed to keep pace with the
growing value of imports, thus decreasing the effective tax rate.
In 1995 Customs collected P1 billion for every
P7 billion worth of imports. The ratio of collection to the value of
imports has so plummeted through the years that in 2002 a P1-billion
collection could be made only after every P19 billion worth of
imports.
Yearly computations of the ratio between Customs
collection and the value of imports show a steady decline in the
percentage of revenue to the value of imports.
In 1995 collection was 14.3 percent of the total
value of imports. The figure dropped to 12.3 percent in 1996, to 8.9
percent in 1997 and to 6.3 percent in 1998.
Collection increased slightly to 7.2 percent in
1999, but fell to 6.8 percent in 2000 and to 6.4 percent in 2001.
In 2002 the proportion of collection to the
value of imports was 5.3 percent, the lowest since 1995. From
January to September 2003, preliminary data from the NSO showed that
collection represented only 5.2 percent of the total value of
imports.
Why import-tax collection has declined
What could explain the decline in import-tax
collection as against the growing value of imports? What could have
pulled down collection despite rising imports?
Customs collection represents two kinds of
revenue: 1) import duties, which consist of tariffs on oil and
nonoil products and 2) import tax, which consists of value-added and
excise taxes.
Determining the causes of the decline in
collection would require a separate analysis of the two kinds of
import revenue.
The rates of import duties or tariffs have
changed through the years, marked by a downward trend largely caused
by the deepening of globalized trade relations.
At least four factors influenced the
fluctuations in the collection of import tariffs and duties:
1) the government’s removal of the special oil
levy of 95 centavos a liter;
2) a tariff measure under the General Agreement
on Tariffs and Trade, which required the shift in the basis of
customs valuation from the wholesale price of the commodity in the
exporting countries (which would yield higher value of imports and,
thus, higher duties) to the transaction value or the actual export
price of imports (which yield lower duties);
3) the government’s successive executive
orders on tariff cuts that were made under the country’s
commitment to the World Trade Organization and the Association of
Southeast Asian Nations; and
4) the growing number of duty-free economic
zones to entice foreign investors.
These negative factors accounted for the
decrease in the collection of import duties, such that in 2001
import duties stood at P39.5 billion, or 41.1 percent, of the total
collection of P96.232 billion. In 2002 the share of import duties to
the total collection of P96.251 billion fell to 38.4 percent, or
P36.9 billion.
Computing the percentage of import duty to the
total value of imports would yield a much lower tax collection based
on import duty.
In 2001 only 2.62 percent of import duty was
collected from the total import value of P1.507 trillion. In 2002
the tax base decreased to 2.02 percent of the total import value of
P1.828 trillion. From January to September 2003, import duty was
only 2.1 percent of the P1.509 trillion of import value.
Higher import value, lower import tax
collection
On the other hand, the formula for determining
the factors that influence the rate of collection based on import
tax is different from that for import duties.
It is safe to say that although the rates of
import duties depend on the changes in tariff measures, the rates of
import tax composed of VAT and excise tax are almost constant or
predetermined. With or without changes in tariff measures, revenue
from tax imports would correspond to the growth of import value.
Thus it could be assumed that the increased value of imports would
also increase the collection of revenue based on import tax.
Surprisingly, this relation between the rise in
the value of imports and the corresponding increase in import tax
was not reflected in the records of the Customs revenue collection.
In 2001 only 3.5 percent (P52.938 billion) of the P1.507 trillion of
the value of import was recorded as total tax import. In 2002 the
value of imports, according to the NSO, rose by 21.3 percent to
P1.828 trillion from P1.507 trillion in 2002.
Since the value of imports rose significantly,
the valid conclusion is that there would be a corresponding increase
in import-tax collection. But what appeared in the records was the
opposite: import-tax collection even decreased by 0.3 percent so
that in 2002, only P59.252 billion in import tax was collected, or
3.2 percent, of the P1.828 trillion of import value.
$5.28-billion discrepancy
There was a wide discrepancy in the import value
records of Customs and the NSO in 2002. Customs records show that
the total value of imports for 2002 was $30.147 billion, or P1.555
trillion (based on the average exchange rate of P51.60 to a
dollar)—which is lower by $5.28 billion than the NSO’s import
value data for the same year.
NSO placed the total value of imports at $35.427
billion, or roughly P1.828 trillion, using the same average exchange
rate.
The Times used the NSO data in computing the
percentage of import tax to the total value of imports in 2002. The
Department of Finance considers NSO statistics the official
government data. Assuming that the NSO data reflected the true value
of imports for 2002, Customs needs to account for additional taxes
for the $5.28-billion import value that did not appear in its
records.
P26 billion in revenue lost in six months
It would be very difficult to explain why
despite the increase in the total value of imports, the import tax
did not also rise. Is corruption the reason for the inconsistency?
It would be easy to say that it is. But until all records are
available for a more comprehensive analysis, it is not safe to
assume that it is the reason. Corruption is illegal and therefore a
covert operation. Expectedly, the books won’t be opened, they
would be hidden or destroyed or no books would be available at all,
so that corruption would remain untraceable.
But an inference could be made, which could be
near to the truth in uncovering the business of the abuse of public
office for private gain. Such was the result of an analysis made by
a Customs official on the relationship between Customs’ import
value and revenue covering January to June 2003—intended to be
used by the Antismuggling Intelligence and Investigation Center to
curb the alleged widespread corruption in the bureau.
The analysis indicated that the government could
have lost an additional P26 billion in revenue collection for the
first six months of 2003 owing to fraudulent practices in the bureau
such as smuggling, technical smuggling, undervaluation,
misclassification or misdeclaration of imported goods.
The analysis showed that total import value from
January to June 2003 was $18.954 billion (P1.023 trillion), of which
57.79 percent, or $10.954 billion (P591.516 billion) worth of
imported goods was considered dutiable; the remaining 42.21 percent,
or $8 billion (P432 billion), was nondutiable.
The analysis showed, however, that Customs was
able to process only $7.407 billion (P399.997 billion) of dutiable
import value for the same period, or 48 percent lower than $10.954
billion.
Basing the revenue collection on only $7.407
billion (P399.997 billion) worth of dutiable goods, Customs
collected only P53.032 billion from January to June 2003. The
Customs official noted that the bureau could have collected P79.65
billion had it been based on the total dutiable import value of
$10.954 billion (P591.516 billion).
Whether the $18.954 billion (P1.023 trillion) of
total import value—used as the basis for the analysis of the
uncollected P26 billion in revenue—is a projection or the actual
figure, the figure appears to be near to the total import value
recorded by the NSO in the first six months of 2003, which stood at
$18.57 billion, or roughly P1.002 trillion, based on the exchange
rate of P54 to a dollar.
(Note: Two weeks ago The Manila Times submitted
a set of questions to Customs Commissioner Antonio Bernardo
regarding the issues discussed in this report. Since January 5 Mr.
Bernardo has not replied to the queries.)
Part 1
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