by Andrea Mae D Gatchalian
In an effort to ascertain the truthfulness and accuracy of the payment of custom duties and taxes, Custom Administrative Order No. 1 series of 2019 (Order) was issued and shall take effect on the thirtieth (30th) day after its publication last January 16, 2019.
Noteworthy that prior to the enactment of the Order, the Fiscal Intelligence Unit of the Department of Finance was in charge of the post audit function. However, the enactment of Republic Act No. 10863, otherwise known as Customs Modernization and Tariff Act reverted such function to the Bureau of Customs (BOC). Further, Executive Order No. 46 series of 2017 created the Post Clearance Audit Group (PCAG) wherein its primary function is to conduct post audit investigation against importers, locators, and all parties engaged in custom clearance and processing.
The Order provides two methods that the BOC will use in ascertaining the truthfulness and accuracy of the payment of customs duties and taxes by the taxpayers: the Post Clearance Audit (PCA) and the Prior Disclosure Program (PDP).
The first method used by BOC is the Post Clearance Audit. Within three years from the date of final payment of duties and taxes or customs clearances, as the case may be, the BOC shall conduct an audit examination or investigation to ascertain the correctness of the declaration made and determine the liability, if any, and including the penalty. Further the Order mandates the importers, locators, customs brokers and other parties to keep and maintain all records enumerated within three (3) years and provide the PCAG full and free access of these records. Failure to do so shall give rise to the presumption of inaccuracy of the transaction declared.
The BOC will develop a computer-aided risk-based management system which provides the criteria in determining who shall be subject to PCA. The criteria shall include but shall not be limited to the following: relative magnitude of customs revenue to be generated from the firm; rates of duties of the firm’s imports; the compliance track records of the firm; assessment of risk to revenue of the firm’s import activities; compliance level of a trade sector; and non-renewal of an Importer’s customs accreditation.
In conducting PCA, the Commissioner shall issue an Audit Notification Letter (ANL) against the taxpayer which shall also indicate the custom personnel authorized to conduct the post clearance audit. The ANL shall be effective within thirty (30) calendar days from issuance subject to revalidation for the same period. The audit proper, wherein the authorized personnel shall examine, inspect, verify, and investigate all the records, shall commence not later than sixty (60) calendar days and shall be completed within one hundred twenty (120) calendar days from the receipt of the taxpayer of the ANL which may be further extended to not later than thirty (30) calendar days. When the audit proper is completed, the BOC shall issue either a Final Audit Report (FAR) with a Demand Letter or a Post Clearance Audit Group – Clean Report of Findings (PCAG-CRF). The issuance of the PCAG-CRF will serve as a proof that the taxpayer has been compliant with the payment of all duties and taxes required by law. On the other hand, the issuance of the FAR with a Demand Letter indicates that the BOC found a deficiency on the payment of customs duties and taxes. The taxpayer has fifteen (15) calendar days from receipt of the FAR with a Demand Letter to pay the assessed deficiency. Upon payment, the BOC shall immediately issue an Acknowledgement Letter as proof of payment and with a statement that the audit is completed.
The taxpayer may file an appeal with either a request of reconsideration or reinvestigation within fifteen (15) days from receipt of the FAR with Demand Letter if the taxpayer contests the findings. A request for reconsideration is a plea to re-evaluate the findings of the BOC and the existing pieces of evidence. On the other hand, a request for reinvestigation is filed if the taxpayer submits new or additional relevant supporting documents. The documents must be submitted within thirty (30) days from filing the request, otherwise it shall be denied. The PCAG has sixty (60) calendar days from the submission of the documents to decide on the request. Should either request be denied, the taxpayer may file an appeal to the Court of Tax Appeals within thirty (30) days from the receipt of the adverse decision.
A taxpayer found to have been deficient in the payment of customs duties and taxes shall be subject to administrative and criminal liability. If the deficiency is found to be by reason of negligence, the offender shall be penalized with a fine equivalent to one hundred twenty-five percent (125%) of the revenue loss. On the other hand, if the deficiency is by reason of fraud, a fine equivalent to six (6) times of the revenue loss and/or imprisonment of not less than two (2) years but not more than eight (8) years shall be imposed. Further, other violations by the CMTA as implemented by the Order shall be penalized through not but not limited to imposition of surcharges and penalties, suspension or cancellation of accreditation, criminal prosecution punishable with imprisonment and/or a fine.
The second method used by the BOC is the Prior Disclosure Program (PDP) wherein the taxpayer submits an application and voluntarily disclose its errors or omissions in goods declaration which may also include disclosures on royalties and other proceeds of any subsequent resale, disposal or use of the imported goods. PDP is also available to those taxpayers who have been issued an ANL. If the taxpayer already received an ANL, the application must be submitted within ninety (90) days from the receipt of ANL in order to defer the audit proper. The application must provide all the necessary information otherwise it shall be denied. Taxpayers whose good declarations are already subject of pending cases with any other Customs office, cases already pending in court, or those involving Fraud are disqualified to avail PDP. Further, as compared with PCA, those who availed of the PDP will be subjected to lighter penalties. Taxpayers who availed of the PDP will be ordered to pay the deficient duties and taxes and legal interest amounting to twenty percent (20%). Those who have been issued an ANL shall further be subject to a ten percent (10%) penalty of the basic deficiency and legal interest.
The issuance of this Order serves as a reminder for taxpayers that no matter what happens, whether the customs duties and taxes has been finally paid, and how it happens, whether thru PCA or PDP, the truth or failure to pay the correct customs duties and taxes, will always come out in the end.
Andrea Mae D. Gatchalian is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
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