Trade facilitation and revenue generation: PH Customs’ tight balancing act

Trade facilitation and revenue generation: PH Customs’ tight balancing act


Much has transpired a year since Philippine Customs Commissioner Nicanor Faeldon assumed the leadership of the Bureau of Customs (BOC) in July 2016.

He came into office after the Customs Modernization and Tariff Act (CMTA)–the law that overhauls the Philippine customs and tariff system and which aligns Philippine customs practices with international regulations–was signed, squarely placing on him and his team the task of operationalizing the historic legislation.

READ: PH Customs modernization act signed into law

Faeldon’s administration is also under pressure to shore up collection to help finance the government’s ambitious Build, Build, Build infrastructure program. The P8-trillion program will mostly be funded by the national budget.

For 2017, the Development Budget Coordinating Committee has assigned BOC a collection target of P468 billion, which Faeldon says is achievable.

Already, revenue collection for the first five months of the year has increased 13.6% to P176 billion from P155.26 billion earned in the same period last year, although 1.5% lower than the P179.08-billion target for the period.

For May alone, BOC collected P39.6 billion, exceeding the target of P38.28 billion by 3.4%. The May collection was also 23.5% higher than the P32.07-billion revenue posted in the same month last year, data from the BOC Financial Service showed.

READ: Higher imports, oil prices boost BOC May collection by 3.4%

The customs bureau said the improved collection performance was largely due to higher oil prices in 2017, and the increase in volume and value of imports by 19.7% and 28.3%, respectively.

The foreign exchange rate likewise increased from P47.05 in 2016 to P49.9 in 2017, resulting in higher revenue yields.

A particularly weak peso augurs well for BOC collection, bolstering Faeldon’s assertion that 2017 targets will likely be met. Budget Secretary Benjamin Diokno has said earlier that a one-peso depreciation would yield a net gain of P7.2 billion for the government coffers as revenues will increase by P9.2 billion as a result of higher collections by the BOC while the foreign debt service will only have a corresponding increase of P2 billion. (On July 10, 2017, the peso was trading at P50.695 to a US$1, the lowest since September 1, 2006, when it was 50.700 against $1.)

Trade facilitation

In tandem with the need to generate revenues is the push for trade facilitation, which is now the focus of many customs administrations. In this area, Faeldon’s team has rolled out a number of orders pursuant to the CMTA, including:

  • Customs Administrative Order (CAO) 02-2016, which raised by a whopping 99,900% the de minimis threshold to P10,000 from P10. The order aims to minimize import costs and customs administration costs of clearing importations with de minimis value, without compromising customs border enforcement patrol; and seeks to adapt to the growing trend toward trade liberalization and facilitation and harmonize the country’s customs laws with different applicable international trade agreements.
  • CAO 03-2016 established an advance ruling system for valuation and rules of origin concerning import and export merchandise in the Philippines. The order makes advance ruling—an official written and binding ruling issued by BOC upon the request of an importer, foreign exporter, or their authorized agent—now part of Philippine law. The ruling gives an assessment of origin or treatment to be applied on a certain element of customs value, or on other matters related to the importation or exportation of goods under customs jurisdiction, prior to an import or export transaction for a specified period.
  • CAO 04-2016 amended the rates of auction bonds for public bidding. Under the amendment, the posting of a duly receipted bond in cash or manager’s check should follow the new schedule: a floor price of not over P10,000 will have no bond; floor price exceeding P10,000 but not over P1 million will a bond equivalent to 20% of the floor price; exceeding P1 million but not over P2.5 million, 15%; exceeding P2.5 million but not over P5 million, 10%; and over P5 million, 5%.
  • CAO 05-2016 allowed tax and duty-free shipment of balikbayan boxes (personal effects and household goods of overseas Filipino workers). The order covers the sending of balikbayan boxes by Qualified Filipinos While Abroad to their families and relatives exempt from the payment of duties and taxes, up to three times and shall not exceed P150,000.00 in a calendar year. A related issuance is  Customs Memorandum Order 33-2016 which contains the implementing rules for CAO No. 05-2016.READ: BOC, DOF sign IRR on duty, tax-free shipment of ‘balikbayan’ boxes
  • CAO 01-2017 covers rules for clearance procedures involving air and sea travelers and crew, as well as their baggage, at all Philippine ports of entry and exit. It prescribes the procedure for clearing air and sea travelers, crew of air and sea vessels, and their baggage, whether accompanied or unaccompanied. It also covers the process for clearing baggage deposited in the Interline Baggage Room and the Customs In-bond Baggage Room.
  • CAO 02-2017 implements Republic Act 10845 or the Anti-Agricultural Smuggling Act of 2016, which took effect on June 1, 2017. The law declares large-scale agricultural smuggling as an act of economic sabotage and levies heftier penalties on violators. CAO No. 02-2017 covers all importations of sugar, corn, pork, poultry, garlic, onion, carrot, fish, and cruciferous vegetables that have a fair market value of P1 million, and all importations of rice with a fair market value of P10 million. Covered are importations of these products whether in their raw state or after having undergone simple preparation or preservation for the market. Under CAO 02-2017, large-scale agricultural smuggling is committed when such produce is imported or brought into the Philippines without the required import permit from regulatory agencies, or when the import permits of persons, whether natural or juridical, other than those specifically named in the permit, are used.
  • CAO 03-2017 covers clearance procedures for postal items or mail, whether or not subject to duties, taxes, and other charges. CAO 03-2017 states that BOC shall establish a system for submitting documents and information, to be interfaced with the designated postal operator of the Philippines. Among these documents are the advance copy of the Postal Customs Declaration Form for postal items from countries where the designated postal operator has a bilateral or multilateral agreement, list of unclaimed postal items beyond 30 days, list of returned-to-sender postal items, list of postal items that were redirected to a third country, and list of damaged postals.
  • Customs Memorandum Order (CMO) 23-2016 vests the power to issue alert orders in the Philippines solely with the Customs Commissioner. The power to issue alert orders previously given to the Deputy Commissioner, Intelligence Group; Deputy Commissioner, Enforcement Group; Deputy Commissioner, Assessment and Operations Coordinating Group on issues concerning rules of origin, valuation and classification of goods; and all district collectors for shipments arriving within their district and sub-ports, under CMO CMO 35-2015, has been revoked.

Right personnel

None of the BOC policies and orders would mean anything if the right people aren’t on the right bus, so to speak.

BOC spokesperson Atty Mandy Anderson told PortCalls BOC “remains firm in its commitment to fill the gap in its manpower capabilities by ensuring hiring qualified individuals for available posts will be accomplished and that the hiring, according to CSC (Civil Service Commission) standards, will be observed.

“As stated in previous pronouncements, the BOC will also ensure that personnel who have long been with the bureau will get their rightful promotion. Aligning the agency according to the CMTA is also a top priority. This includes restructuring the agency in terms of its territorial jurisdiction, staffing patterns, renaming the BOC”, that is, “renaming of officials to comply with international practice.”

The BOC is regarded as one of the most corrupt agencies in government. The low salary of employees is generally seen as a major contributor to corruption. In order to address the issue, the agency is pushing for exemption from the Salary Standardization Law so that personnel’s salaries may be upgraded.

Personnel will also undergo proper training with the launch of the Philippines’ very first Philippines Customs Academy. Anderson said the academy, to be operated by the BOC, ensures “competent people with the proper training and customs education will be hired and retained by the agency.”

RELATED STORY: Genuine customs reform requires a mix of ingredients, says former BOC official

RELATED STORY: The Evolving Role of Customs

Meantime, the BOC has tightened rules on nepotism via the issuance of CAO 04-2017. There have been numerous reports in the past that regular personnel are able to successfully recommend their relatives to take up positions at the BOC. Prohibited under CAO 04-2017 are all appointments that favor a relative of the appointing or recommending authority, or the chief of the bureau or office, or persons exercising immediate supervision over applicant.

Systems upgrade

Beyond the focus on personnel, the BOC is looking at acquiring additional equipment to enhance border protection, specifically more x-ray machines and water patrol assets. The bureau is also pushing for its institutionalization as a law enforcement agency, Anderson noted.

RELATED STORY: BOC’s x-ray unit back with Office of Commissioner

In addition, the BOC is eyeing to upgrade its systems. It is now shopping around for a maintenance provider for its electronic-to-mobile (e2m) system, which was introduced in 2004 but has since seen better days. The e2m is prone to downtime, which not only delays clearance processes but also opens up avenues for corruption.

READ: BOC scouting for e2m service provider

The National Single Window (NSW)–a trade facilitation measure that aims to connect 40 government agencies and allow them to transfer electronically data and other information relevant to import processing–has moved slowly, if at all, in the last year, plagued by interconnection issues among the agencies.

The NSW will now be subsumed under TradeNet, a bigger and more ambitious automation project to be handled by the newly formed Department of Information and Communications Technology. TradeNet, a single online platform for traders, will connect 66 agencies and 10 economic zones involved in regulating the country’s trade; it will also link the NSW to the ASEAN Single Window.

READ: PH plans yearend NSW linkup with ASEAN Single Window

TradeNet seeks to expedite the processing of import and export permits and accreditation of importers from months to three days, or even less. The system was to have been pilot-tested in July and targeted for rollout by September.

While equipment acquisition and systems upgrades are being worked on, the BOC is in the meantime clearing its database of importers and customs brokers that are under investigation, have show cause orders, or are prohibited from reactivating their accreditation following seizure of their shipments. To this end, the Account Management Office regularly publishes such a list.

Illegal drugs

Hewing to the Duterte administration’s focus on an anti-drug war, the BOC has stepped up its anti-drugs efforts in the last year.

Drug seizures made during intelligence operations from July 2016 to May 2017 in several ports and warehouses across the country have yielded at least 795 kilos of methamphetamine hydrochloride, locally known as shabu, and worth more than P7.6 billion, the agency said in an earlier statement.

The latest anti-illegal drugs accomplishment report released by the BOC showed that the biggest catch came on May 26, 2017, when 605 kilos of high-grade shabu with an estimated street value of P6.4 billion were confiscated.

As it moves forward, the BOC’s work is cut out for it. It has to raise considerable revenue on the one hand, and boost trade facilitation measures, on the other, all under the watchful eyes of a skeptical public that sees the agency as a hotbed of corruption. BOC’s tasks can only be seen as a very tall order that can only be achieved over time with a mix of the right policies on people, systems, and process — and with much political will.

For a pdf of the supplement on the Bureau of Customs, click here.

Image courtesy of khunaspix at


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