While there was a slowdown in customs post-clearance audits (PCAs) in 2021 and 2022 primarily due to the pandemic, the Bureau of Customs (BoC) Post-Clearance Audit Group (PCAG) ramped up its activities thereafter.
The BOC issued a total of 932 Audit Notification Letters (ANLs) in 2022 and 2023, marking the audit commencement for hundreds of importers. With the BoC’s increased target collection of P959 billion this year, the BoC is expected to continue issuing more ANLs and conducting more PCAs.
ONGOING PCAS
A PCA is a post-release evaluation conducted by the BoC and is intended to verify the truthfulness and accuracy of declared customs values, and tariff classifications of imports, among others. It is an exercise performed by the BoC through the PCAG to assess importers’ compliance with their obligations to pay correct duties and taxes on importation and keep records in accordance with law. A PCA typically involves an audit of import activities made in the last three years, and a review of all import documents and records relating to such activities.
The current auditees are companies, both multinational and local, from almost all industries with regular import activities. Even companies located in economic zones and enjoying duty and tax incentives are being audited to check on their compliance with the conditions set for exemption. Accredited Super Green Lane importers, who are enjoying faster clearance of goods, are likewise being audited as part of their commitment to submit themselves to periodic review.
In selecting importers for audit, the PCAG uses a risk management system to conduct systematic benchmarking and review of historical trade data, allowing it to determine compliance markers. It also analyzes import data from the BoC’s Management Information System and Technology Group and gathers derogatory information from different customs offices. It also seeks to gather information from the proposed exchange of information with various government agencies.
In a PCA, the importer is required to actively participate, discuss with the PCAG officers, and provide the examiners full and free access to records. Importers are expected to address questions relating to correctness of declarations and submissions made by customs brokers on their behalf.
FILING A PRIOR DISCLOSURE PROGRAM (PDP) APPLICATION
Pursuant to international best customs practices, the PDP authorizes the BoC Commissioner to accept disclosure applications by importers of their errors and omissions in import declarations that resulted in duty and tax liabilities on past imports.
When availed of by importers, the PDP effectively helps to prevent a full customs audit and minimizes the imposition of steep penalties otherwise imposed in a regular audit. The general penalty for negligence, for example, which is 125% of the basic deficiency duties and taxes, may be reduced to 10% in a successful PDP filing.
Importers should take note, however, that the PDP mechanism is only available within a limited time frame, that is, 90 calendar days from the receipt of an ANL, in case there exists an ANL served. In the absence of an ANL, the PDP may generally be filed at any time.
INCREASE IN PDP FILINGS
Remarkably, the PCAG continues to drive compliance of importers, as shown in the availment of the PDP mechanism where importers, whether under audit or not, voluntarily disclose their errors and pay the deficiency duties and/or taxes. In 2023, the BoC collected P1.793 billion from PDP applications, which is 12.6% higher than the PDP collection in 2022 of P1.592 billion. The collection from PDP applications accounts for more than 91% of PCAG’s total collections of P1.959 billion in 2023.
This significant increase in PDP payments shows that more importers are voluntarily disclosing their exposures, demonstrating good faith, the commitment to comply with customs laws and regulations, and the desire to contribute to the government revenue collection efforts.
The PCAG continues to encourage importers to avail of the PDP instead of letting PCAs ensue.
COMMON CUSTOMS ISSUES
The filing of a PDP application by an importer presupposes having knowledge of customs issues to be disclosed and quantified duties and taxes to be paid to customs. Hence, for a PDP application to be successful, it is imperative for the importer to conduct a prior internal customs compliance review.
In the review, importers should make sure that the components of the dutiable value of imports are fully captured in the declarations to customs. These include checking on the proper declaration of price or cost and adjustments such as insurance, freight, royalties or license fees, interest, proceeds of subsequent resale, as well as transfer pricing adjustments. Importers should also be keen on reviewing the proper classification of goods for purposes of determining the applicable duty or tariff rates.
Other common issues noted during a PCA include the improper declaration of the components of the landed cost for VAT purposes, improper calculations of excise tax in cases applicable, disallowed preferential duty rates due to missing certificates of origin, and misuse of tax incentives, if any, to name a few. Specific issues and considerations may apply to certain industries.
Importers can also make use of the review to monitor compliance with administrative requirements, principally record-keeping.
COMPLIANCE MADE MORE CONVENIENT
Overall, it seems more prudent for importers, whether under audit or not, to avail of the PDP in view of reduced penalties and simpler processes. It is certainly less cumbersome than undergoing the full PCA process. If a PDP application is found to be a full disclosure and is well-supported, it will likely be approved to the benefit of the importer.
To prepare for customs audit and manage the filing of PDP applications, if need be, importers may consider establishing robust internal processes for imports, creating a strong and adequately supported supply chain team, ensuring consistent interactions and coordination with customs brokers and other providers, and regularly reviewing its overall customs practices.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. or EY.
Lucil Q. Vicerra is the head of Indirect Tax/Global Trade & Customs of SGV & Co.
