Warning: Here Comes An Empowered Customs Audit Group

Malacañang has recently issued Executive Order (EO) No. 46 (dated October 20, 2017) entitled “Reviving the Post Clearance Audit Function of the Philippine Bureau of Customs (BOC) and Institutionalizing the Functions of the Financial Analytics and Intelligence Unit of the Department of Finance (DOF)”.

The customs audit function was transferred from the BOC to the DOF sometime late 2013. But the Customs Modernization and Tariff Act (CMTA) clearly provides that Post Clearance Audit (PCA) is a function and responsibility of the BOC. With this latest development, BOC is expected to aggressively start its customs audits once the PCA group is organized and a new head is assigned.

An International Best Practice. In past decades, the rapid growth in volume and complexity of international trade placed the capabilities of customs administrations to the test. The establishment of the World Trade Organization (WTO) and the creation of regional trade arrangements and economic cooperation (e.g., AFTA and NAFTA) further facilitated the trend towards an integrated global economy. Amidst increasing trade and decreasing tariffs, companies demand better trade services and timely customs clearance to cope with the pressure of international business. Customs administrations, on the other hand, are under pressure to collect revenue and protect their border from contraband. Unfortunately, these are often carried out against a backdrop of meager resources.

PCA is an international best practice aimed at increasing trade facilitation, encouraging voluntary disclosures, reducing incidence of fraud and protecting government revenues. It is a system where customs conducts compliance audits after imported goods have been released from customs custody. The traditional practice was to conduct verification at the time of importation which, in many instances, delayed the release of the imported goods. In principle, PCA should lead to:

• enhanced customs compliance by making it a shared responsibility between the BOC and the importer;
• accelerated clearance of imported goods through increased trade facilitation and control in the processing of import transactions; and
• efficient allocation of the BOC’s limited resources.

RA 9135 and the CMTA. Customs audit was mandated in 2001 under Republic Act No. 9135, which amended the Tariff and Customs Code of the Philippines (TCCP). The BOC Post Entry Audit Group was created under EO No. 160 in January 2003; it would take another year before audits began.

Under the CMTA, “Post Entry Audit” has been renamed “Post Clearance Audit”, the latter being the commonly used term by most customs jurisdictions. While many provisions are based on RA 9135, among the substantial changes are as follows:

• increase in the minimum penalty but decrease in the maximum penalty in case of findings of underpayment of duties and taxes; and
• additional powers to the Bureau to enable it to fully exercise its audit powers — power to issue summons to produce records and to give testimony, and to exercise summary remedies such as distraint of personal property and levy of real property to implement its audit findings (Sections 1132 – 1134, CMTA).

Under EO 46, the customs audit unit shall be called the Post Clearance Audit Group (PCAG) to be headed by an Assistant Commissioner and under the supervision of the Commissioner. Within 3 years from the payment of duties and taxes, PCAG may conduct an audit examination, inspection, verification and investigation of records pertaining to any goods declaration.

Enhanced Customs Audit Powers. From 2004 to 2013, BOC conducted audits on hundreds of companies resulting in the imposition of additional assessments amounting to hundreds of millions of pesos. Most of the companies audited were subjected to a penalty of 100% of the amount assessed.

CMTA has now increased the minimum penalty from 50% to 125% (in case of negligence) and decreased the maximum penalty from 800% to 600% (in case of fraud). In the conduct of an audit, customs may issues summons to obtain information and records pertaining to importations. The Commissioner may also obtain information from banks with regard to payments made to suppliers on import transactions.

In case an importer refuses to settle the additional assessment (plus penalty) after the issuance of a final audit finding, BOC may take any of the following actions:

• hold the release of pending shipments;
• suspend accreditation of the importer;
• impose a 20% interest on the additional assessment;
• seize and distraint the personal property of the importer, which may include vehicles, movable goods, equipment, stocks, securities and bank accounts; and
• issue a warrant of levy on real property such as lands and buildings.

Given this, importers must ensure compliance on their shipments and, if necessary, conduct a due diligence review of previous importations.

Agaton Teodoro O. Uvero is an international trade, indirect tax (customs) and supply chain practitioner.  He is the Editorial Board Chairman of Asia Customs and Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. For questions, please email him at agatonuvero@customstrade.asia (www.customstrade.asia).