THE Philippine government loses some $3.85 billion in customs revenues a year, based on the figure revealed for 2011 by the US based think tank Global Financial Integrity (GFI), because of blatant undeclaration of imported goods.
In its report, “Illicit Financial Flows to and from the Philippines: A Study in Dynamic Simulation,” GFI says, “mis-invoicing” of imported goods, or fraudulent misrepresentation, whether underdeclaration or overdeclaration, of the real value of goods reaching the Philippines, is a prevalent practice.
GFI estimates that “mis-invoicing” has grown in the past decades to the point that today $1 out of every $4 or 25% of the true value of imported goods goes unreported to the Bureau of Customs.
GFI said in its report that “the $3.85 billion in lost tax revenue in 2011 was more than twice the size of the fiscal deficit and equal to 95 percent of the total government expenditures on social benefits that same year.”
International Monetary Fund (IMF) and the World Bank data that GFI used in its report show that every year since 1990 the Philippines has been losing at least $19.3 billion in revenues due to “Customs duties evasion” through under-invoicing of imports. Also since 1990, the government has lost $3.7 billion in tax revenues through the under-invoicing of exports. The government loss as a result of under-invoicing since 1990 has totaled $23 billion.
Says the report: “The problem of smuggling has been a long standing issue in the Philippines. The country’s multiple points of entry and over 7,000 islands pose a logistical nightmare for customs administration, which is also riddled with corruption.”
As if addressing the Aquino administration’s so-called Matuwid na Daan slogan, the GFI report also points out that the observed phenomenon shows that there is a direct correlation between a country’s failure to control corruption and the rise of mis-invoicing.
The report compares the Philippine experience with that of South Korea. Here trade mis-invoicing grew by some 3 percent annually over the past 52 years. This was a period when our country posted a negative 53 percent “control of corruption index.” South Korea’s trade mis-invoicing, however, decreased by 4 percent over the past 52 years when its “control-of-corruption index” posted a positive eight percent.
The managing director of GFI said in the February launching of the report that the reality is probably higher because they had been very conservative in making estimates.
Meanwhile, the smuggling of industrial and oil products, rice and other food products has continued and grown unabated.
Federation of Philippine Industries (FPI)
The Federation of Philippine Industries (FPI) the other day once again urged the Bureau of Customs to immediately do something in its power to curtail smuggling.
It is apparently in the Philippine government’s power, through BOC, to acquire imported goods that are grossly undervalued—or, to use the GFI’s term, mis-invoiced.
Jesus Lim Arranza, FPI Chairman and concurrent head of the FPI Anti-Smuggling Committee, explained that Section 2317 of the existing Tariff and Customs Code of the Philippines (TCCP) currently provides for this measure.
In his letter to the BOC, Arranza said, “The reason why we are reiterating this recommendation is because grossly undervalued Bi-axially Oriented Polypropylene (BOPP) film products imported from China are alarmingly increasing. Based on the records shown to the Federation, the price of BOPP Films in the world market ranges from US$2.00 to US$2.50, however, some importers who are sourcing it from China are declaring the same at an average of US$00.22 and even to as low as US$00.16, Arranza revealed.
“In view thereof, the growth of the BOPP Film industry in the Philippines is being gravely hampered since they could not expand due to unfair competition from these grossly undervalued importations.
“If the Bureau of Customs (BOC) will only invoke the Government’s Right of Compulsory acquisition, it will financially cripple the technical smugglers since the State will be able to purchase the imported product based on the declared value – which is the grossly undervalued price. Moreover, the government will have a windfall profit as it can sell the products at the correct price and collect the difference. Thusly, if this is consistently implemented, all unscrupulous importers of BOPP Films as well as of other products will now be forced to declare their importations at the proper value.”
We support the FPI’s recommendation.
BOC should go ahead and pay the wrong low price to the importers of the BOPP and any underdeclared imports— and then sell them for a profit.