FOLLOWING the issuance of Republic Act, Customs Modernization and Tariff Act or CMTA (RA10863) on May 30, the Bureau of Customs has released the implementing rules for it. After conducting a public hearing and consultation on the draft Customs Administrative Order regarding the “De Minimis Importation” provisions of the CMTA, Customs Commissioner Nicanor Faeldon signed CAO 02-2016 on September 28. According to the Bureau of Customs, starting tomorrow, all importations below P10,000 shall be treated as ‘de minimis importation.’
One of the objectives of the new policy is to reduce the administrative costs for importations with de minimis value. The government recognizes that it makes little sense to spend the same administrative costs on these importations as the government does for high-value importations only to collect minimum amounts of duties and taxes. Besides, this is in compliance with the government’s effort, under the revised Kyoto Convention, to facilitate trade by harmonizing and simplifying customs procedures and practices.
The Philippines, a signatory to the Kyoto Convention, must accept and commit to the principles reflected therein. Transitional Standard 4.13 of the Kyoto Convention provides that, “National legislation shall specify a minimum value and/or a minimum amount of duties and taxes below which no duties and taxes will be collected.”
Another purpose is to comply with the country’s commitment to implement the World Customs Organization (WCO) Framework of Standards and Guidelines. Under the WCO immediate release guidelines, the new Customs Administrative Order has adopted the pre-arrival clearance procedures to facilitate immediate release of the de minimis importation. The immediate release guideline operates on the principle of information being provided in advance by the importer of the arrival of the goods to assist in expediting the clearance of a large number of small or negligible value goods.
The de minimis importation value under the old customs and tariff act of 1978, which was in effect until May30 this year, was only P10, which meant that virtually all importations were subject to tax.
It should be noted that before May30, the Philippines had the lowest threshold value for exempt importations among all Southeast Asian countries. Using the April 2016 foreign exchange rates, Singapore, Brunei, and Malaysia have the highest duty exemption threshold of $296, $295, and $128, respectively. Even the de minimis values in Indonesia, Vietnam, and Thailand—$50, $28, and $40, respectively—are nowhere near the previous de minimis value of the Philippines of less than a quarter of a dollar ($0.22).
A study conducted by the International Chamber of Commerce (ICC) found that to achieve a net economic benefit in terms of de minimis values, the threshold should be at least $200. This $200 value, the ICC emphasized, is just the baseline.There should be efforts by governments to raise this threshold to an ideal US$1,000 non-dutiable/taxable value.
The Philippines’ new de minimis importation value of P10,000 is on top of the new exemption for balikbayan boxes of at least P150,000 per year. Under Section 800 of the CMTA, the balikbayan box exemption allows up to three balikbayan boxes per calendar year provided that the total value does not exceed P150,000. Such exemption could be increased to P250,000 for Filipino nationals who have stayed in a foreign country for at least five years, and up to P350,000 if the Filipino national has stayed outside the Philippines for at least 10 years.
The balikbayan boxes exemptioncovers only personal and household effects, which should not be in commercial quantities nor intended for barter, sale, or hire. To date, however, The implementing rules for this balikbayan box exemption is yet to be issued. The Department of Finance and the BOC are scheduled to conduct a public consultation this Thursday for drafting these implementing rules.
As concise and straightforward Section 423 of the Customs Modernization and Tariff Act on the determination of the de minimis value may be, CAO 02-2016 could have included provisions that would leave no room for interpretation as to how the exemption provision is implemented.
For one, it did not mention or clarify whether such exemption would be available only once a year or such privilege could be enjoyed on every shipment. Similarly, would an importation exceeding the threshold amount be subject to duties and taxes only on the excess of P10,000 or on the dutiable value of the total shipment?
Unlike the exemption provision for balikbayan boxes under Section 800, which is very clear on the P150,000 privilege being enjoyed only once per calendar year, the de minimis provisions in the CMTA and in its implementing rules are bereft of any pronouncement on this matter. This may, thus, be left to be interpreted by customs examiners, which could lead to different treatments per district office.
Another question that may also arise is the determination of customs valuation for purposes of this exemption.
Under method one, or the Transaction Value method, there are additive adjustments in the dutiable value of the imported articles/goods such as commissions and brokerage fees, cost of containers, and cost of packing incurred by the buyer/importer, royalties and license fees related to the goods, freight charges, cost of insurance, and other expenses for the transport of the goods to the port of importation. Would these additive adjustments, if any, still be considered for determining the threshold value, which could eat up a chunk of the de minimis exemption? Or will it be limited to the price actually paid or payable for the goods imported? If this is not clarified, it again may be subject to the interpretation of individual customs examiners.
Such implementing rules of the CMTA provisions on the de minimis value needs a little fix to address unclear matters, keeping in mind that ambiguous laws and regulations on exemption may result in loopholes or undue privileges for importers or may provide an opportunity for corruption as the government personnel could interpret vague provisions of rules and regulations in a manner that will suit their agenda.
Altogether, however, this new de minimis exemption threshold is a welcome development for returning residents or overseas Filipino workers (OCWs) who would be at ease knowing that the pasalubong they bring into the country will no longer be subject to duties and taxes.
The author is a senior manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd., a member firm of Deloitte Touche Tohmatsu Limited —comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.