The Philippine Bureau of Customs (BOC) has released guidelines on handling applications for duty drawback and refund for overpayment, abatement of duties and taxes, and other refunds under the Customs Modernization and Tariff Act (CMTA).
Customs Administrative Order (CAO) No. 04-2019—signed by Customs commissioner Rey Leonardo Guerrero on February 20 and Finance secretary Carlos Dominguez III on April 8—provides streamlined guidelines on the application, processing, approval and payment of duty drawback and refunds; prescribes the form and manner of payment of claims for tax credits and refunds; and simplifies the process on use and revalidation of tax credit certificates.
The order covers refunds including those arising from final decisions in protest cases, judicial decisions, special laws, and executive or presidential issuances. It takes effect 30 days after publication in a newspaper of general circulation.
CAO 04-2019 implements Chapter 1 (Duty Drawback) Sections 900 to 902, and Chapter 2 (Refund and Abatement) Sections 903 to 913 of Republic Act (R.A.) No. 10863 or the CMTA.
CAO 04-2019 noted no existing rules or customs orders were previously followed in processing applications for refund other than CAO 05-92, which was issued in 1992, and the provisions of the Tariff and Customs Code of the Philippines, save for the manner of payment or case refund of value-added tax and utilization of tax credit certificates (TCC).
The new order defines duty drawback as the refund or credit of duties, and may include internal revenue taxes, actually paid for the importation, in whole or in part.
Refund is the return, in whole or in part, of duties and taxes resulting from an overpayment or erroneous payment or overcharge as a result of an error in assessment.
Abatement refers to the reduction of duties and taxes payable on imported goods on account of loss, damage, shortage, defect, and other similar circumstances as defined in the law.
Pre-CMTA, abatement was subject to the payment of duties and taxes, former BOC deputy commissioner Atty. Agaton Teodoro Uvero pointed out in his book Understanding International Trade, Tariff & Customs.
Now under Section 909 (Abatement and refund of defective goods) of the CMTA, Uvero said goods imported but subject to re-exportation for being defective are not subject to duties and taxes as are goods previously exported but returned for being defective upon their re-importation.
Under CAO 04-2019, an importer may apply for duty drawback of up to 99% of the duty imposed by law for all fuel imported into the Philippines used to propel sea vessel engaged in international trade; imported fuel used to propel a sea vessel engaged in coastwise trade, provided the Maritime Industry Authority or any appropriate government agency has authorized the temporary conversion of that vessel to engage in international trade; and imported fuel used scheduled international airlines.
A duty drawback of up to 50% may also be applied for on the duty imposed by law for petroleum oils and oils obtained from bituminous materials, crude oil imported by non-electric utilities, sold directly or indirectly, in the same form or after processing, to electric utilities for the generation of electric power and for the manufacture of city gas.
In addition, an importer may apply for duty drawback for imported materials, including imported articles used in the packing, packaging, covering, putting up, marking or labelling, in whole or in part, for which duties have been paid, upon exportation of the goods manufactured or produced, subject to certain conditions.
CAO 04-2019 notes, however, that under RA 5186, or the Investment Incentives Act, or RA 6135, or the Exports Incentives Act of 1970, a registered enterprise which has previously applied for tax credits based on customs duties paid on imported raw materials and supplies shall not be entitled to duty drawback for the same importation subsequently processed and re-exported.
On refund of any duties and taxes charged in excess of the amount due, an importer may apply when there is an error in the assessment of goods declaration; when BOC permits a change in customs procedure, in the instances of consumption to warehousing, from one where duties and taxes are paid to another where no or less duties and taxes are required to be paid; when manifest clerical errors were made on an invoice or entry, errors in return of weight, measure and gauge; or when there are errors in the distribution of charges on invoices not involving any question of law, which means only questions of facts.
However, refund shall not be granted if the amount of duties and taxes involved is less than P5,000; provided that the Finance secretary, in consultation with the Customs commissioner, may adjust the minimum amount, taking into consideration the consumer price index as published by the Philippine Statistics Authority.
According to Uvero, Section 903, which provides the rules on refund, is a new provision introduced in the CMTA and hews to the Revised Kyoto Convention, the simplified International Convention on the Simplification and Harmonization of Customs procedures adopted by the CMTA.
Meanwhile, an abatement is allowed for missing packages, for deficiency in content of packages, for goods lost or destroyed after arrival, for defective goods, and for dead or injured animals, all subject to certain conditions under CAO 04-2019.
In all cases of abatement or refund of duties and taxes, the customs officer concerned shall submit an examination report on any fact discovered which indicates any discrepancy and causes the corresponding adjustment on the goods declaration.
Before a duty drawback, refund, or abatement is approved, the BOC must verify that all duties and taxes subject of the claim were duly paid and remitted to the Bureau of Treasury.
BOC shall likewise ensure that claimant has no outstanding obligation, meaning the outstanding obligation must be settled before the claim is approved.
Approved claims for tax credit or refund may be paid through issuing a TCC or in cash, subject to budgetary requirements, laws, rules, and regulations. Every time a TCC with BOC is utilized, it must be covered by a duly issued tax debit memorandum (TDM) that shall be valid for 60 days.
In a statement, BOC said that with the advent of the CMTA, claimants may now get their refunds through payment of outright cash, eliminating the processing for the issuance of TCCs and the subsequent processing of the utilization of TCCs in the payment of duties and taxes. Previously only VAT refunds duly approved by the Bureau of Internal Revenue were previously allowed to be paid in cash.
Further, CAO 04-2019 adopted a new policy of non-transferability of TCCs, which BOC noted “ensures that all TCCs to be issued arise only from valid claims of importers” and “eliminates the transfers of fraudulent TCS to third parties which has plagued BOC in the past.”
If the district collector denies a claim for refund or abatement, the importer may file an appeal with the Customs commissioner within 30 days from the date of receipt of the denial. The Customs commissioner shall then render a decision within 30 days from receipt of all the necessary documents supporting the application. If the appeal to the Customs commissioner is denied, the importer, within 30 days from receipt of the decision, may also appeal to the Court of Tax Appeals.
Pending a centralized and updated BOC system governing tax credit and refund transactions, the existing TCC and TDM modules in BOC’s current systems shall be utilized to implement CAO 04-2019. The bureau’s Management Information System and Technology Group shall devise a system by which each of the concerned units can easily monitor these transactions. – Roumina Pablo