The Federation of Free Farmers (FFF) denounced the Bureau of Customs (BoC) for its continued failure to check the gross undervaluation of rice imports which has resulted in huge shortfalls in tariff collections. BoC data indicated that Php 4.8 billion in tariffs were collected from 766,000 metric tons of rice imports from January to April 2020. However, an FFF study revealed that the BoC could have collected Php 890 million more in tariffs had it made the proper assessment of rice import values.
The FFF had previously flagged similar anomalies in 2019 which resulted in an estimated tariff shortfall of Php 1.9 billion. “We reported these findings to DA Secretary William Dar and DOF Secretary Carlos Dominguez in August 2019, but we did not receive any feedback on what corrective actions were taken. It appears that all the importers who undervalued their shipments were allowed to go scot free. And now it seems that they are continuing to ignore these leakages even as they encourage private traders to import more rice.”, said FFF National Manager Raul Montemayor.
“By not diligently enforcing its rules, the BoC did not only reduce the government’s collection of much-needed tariff revenues. More importantly, it deprived millions of small rice farmers of a cumulative amount of almost Php 3 billion since the Rice Tariffication Law or RTL took effect in March 2019. This amount, which should have helped farmers cope with the ill effects of liberalized rice imports and even COVID-19, instead went to the pockets of unscrupulous importers and maybe even some BoC personnel”, Montemayor added.
Montemayor explained that tariffs are based on the cost, insurance and freight or CIF price of imports. The cost component is normally the price of the import, called the Free on Board or FOB price, at the point of origin. Freight is the cost to ship the imports from the point of origin to the point of destination in the Philippines. Importers usually pay insurance to protect their shipments from accidents and losses. The CIF price is multiplied by the tariff rate to arrive at the customs duties that the importer has to pay for a particular shipment. For rice imports originating from ASEAN countries such as Vietnam and Thailand, the tariff rate is 35%.
Based on the FFF’s latest analysis, the BoC failed to collect an additional Php 471 million in tariffs during the first four months of 2020 due to the apparent undervaluation of FOB prices of imports. In these cases, importers declared FOB prices which were lower than the BoC’s own Reference Prices which, in turn, are based on internationally published rates. About one-third of the volume imported was undervalued by at least 10% and accounted for 84% of the tariff shortfall. In one instance, a shipment of 6,014 metric tons of rice with 5% brokens arrived from Vietnam in April 2020 with a declared FOB value of USD 319.63 per MT. The BoC accepted this even though it was almost 30% lower than its USD 447 reference price and lost Php 13.7 million in additional tariff collections as a result.
BoC officials have maintained that they have to respect the declared FOB values of importers for as long as documentary proof is submitted, even if the values fall below their reference rates. “If this is the practice, what then is the purpose of the reference rates? What will now stop an importer from conniving with the exporter to issue undervalued invoices or issue two separate invoices to split the total cost of the imports?”, asked Montemayor.
In addition to the apparent undervaluation of FOB prices, the FFF study showed that the freight and insurance costs for the imports were grossly misdeclared. An analysis of the BoC data reveals that importers spent less than two centavos per kilo, or about USD0.30 per metric ton, to insure and ship rice from countries like Thailand and Vietnam all the way to Manila. In comparison, internationally published rates peg regular freight and insurance at a minimum of US$33 per MT, or 110 times the value declared by importers. An estimated Php 416 million in tariff collections were lost because of this anomaly.
“Importers may claim that their declared FOB values already include insurance and freight. If so, the BoC must also adjust its Reference Prices to include internationally recognized insurance and freight rates so that it can properly detect undervalued imports.”, said Montemayor.
Under the RTL, Php 10 billion will be allocated annually for six years starting 2019 to a Rice Competitiveness Enhancement Fund or RCEF which will be used to increase the productivity and reduce the costs of production of rice farmers. Although the RCEF itself is not dependent on tariff collections, the RTL provides that tariff proceeds in excess of Php 10 billion in a year can be used for additional support programs for farmers and will be appropriated by Congress. “Funds for these supplemental programs may end up zero or very small as a result of tariff shortfalls resulting from undervaluation and other anomalies.”, explained Montemayor.