Customs moves to put a lid on fuel smuggling

SPECIAL REPORT: Conclusion

MANILA, Philippines - The Bureau of Customs, under the leadership of former military rebel Nicanor Faeldon, said it is probing deep into the billions of pesos in revenue losses from smuggling of the top three products being imported into the Philippines every year.

It considers fuel smuggling as its top priority, alongside cigarette and luxury vehicle smuggling.

According to BOC statistics on oil smuggling, the agency loses an estimated P22.5 billion a year from the illegal activity.

The BOC said “mis-invoicing” of imported goods or fraudulent misrepresentation, whether under-declaration or over-declaration of the real value of goods, are among the prevalent violations the agency wants to address.

In its 2016 report, the BOC’s legal service said there are oil, motor vehicles and cigarette companies that owe billions of pesos in unpaid taxes to BOC and are currently the subject of court litigations and soon, hopefully, subject to the agency’s administrative penalties. 

“We are ready to use all available options in the probe against erring companies of oil, motor vehicle and cigarette to make sure we control all forms of revenue leaks that are seriously detrimental to hitting revenue targets, including proper trade facilitation processes of BOC. It will never be an easy task for us, but we will toil hard through sweat and blood, only to make sure that we do our jobs in our faithful compliance to our mandated tasks as public servants,” Faeldon said.

The probe is part of BOC’s mandated effort to collect higher revenues, stop bribery in the agency and ferociously snuff smuggling to hit collection targets and enforce critical reforms in line with the policies of President Duterte.

Remedies against fuel smuggling

The country’s oil players themselves said they are one with the BOC in the fight against fuel smuggling.

Phoenix Petroleum Philippines Inc., for instance, said it supports the BOC’s efforts to fight illicit oil trade.

Phoenix itself has been dragged into the smuggling issue when the BOC filed a P6-billion smuggling case against the company in 2011. Phoenix had denied the charges and in 2014, the Court of Appeals dismissed the case filed by the Department of Justice.

Sought for comment on the proliferation of fuel smuggling in the country, Phoenix president Dennis Uy simply said some trading areas continue to sell below cost.

“I don’t know if (smuggling) is still rampant. Some trading areas are really below cost. Whether it is because of competition or smuggling, we don’t know,” Uy told The Star in a recent interview.

He said companies like Phoenix Petroleum will cooperate with the government in fighting smuggling.

Asked what he thinks is the solution to addressing the problem, Uy said the government can implement advance taxation.

“For example, if you already have a target market share in a year or forecast, you pay your taxes for that already,” Uy said, adding this is one way to address the problem.

A ranking official from one of the Big Three oil companies said the simple solution is stricter implementation of taxes.

“The solution really is to have the political will to properly and strictly implement taxes,” said the official.

He said the BOC should also remove opportunities for corruption.

The Department of Finance (DOF) said it would revive the use of fuel marking to curb smuggling, alongside the government’s proposed increase in fuel excise tax under the Comprehensive Tax Reform Program (CTRP).

According to the Asian Development Bank (ADB), which supports the scheme, fuel markers can range from simple colored dyes to unique covert markers and their respective detection methodologies.

The National Tax Research Center (NTRC) also supports the DOF’s plan.

In a position paper, NTRC acting executive director Trinidad Rodriguez said fuel marking would prevent fuel fraud and smuggling while raising government revenues.

It said fuel marking would increase tax receipts without necessarily raising taxes and “enhance control to improve tax compliance and mitigate against tax evasion while minimizing losses from fuel fraud.”

Rodriguez said fuel marking has been used in the Philippines since 1983, mainly to monitor the quality of petroleum products.

In January 2014, however, the Department of Energy discontinued the use of chemical marker on fuel, replacing it with a product-quality monitor procedure through direct and indiscriminate product sampling and testing to check compliance with the Philippine National Standards.

But for oil players, the fuel-marking program merely adds another layer of human intervention – or another opportunity for corruption.

“Who will check the fuel marking? What usually happens is that smugglers just pay off the inspectors,” said an executive from an oil company.

The more practical solution, he said, is really to have the political will to prosecute smugglers to send a message to others that the Duterte administration is serious in its fight against corruption.

Oiling the wheels of organized crime

If left unchecked, fuel smuggling in the Philippines can contribute to the continued existence of organized crime worldwide.

Fuel smuggling has been recognized around the world and has been cited as one of the reasons behind organized crime, according to the Global Initiative Against Transnational Organized Crime.

“Organized crime syndicates and petty traders profit off the differences in the price of petroleum, buying petrol where it is cheap – or stealing it – and selling it slightly below market rates in areas where it is more expensive. There is no shortage of customers. Apart from its profitability, petrol smuggling is attractive to organized crime groups due to the ease with which they can procure the product. For most smugglers, their petrol comes straight from the pump at a local service station.  For some the product is procured directly from wholesalers, while in other places – notably Nigeria and Mexico – the petrol is stolen in bulk from pipelines. The sale of the petrol is as easy, either sold at the roadside, or fenced through unscrupulous service station owners. While smuggled petrol usually stays within the region it has been pilfered from, stolen crude oil can go global, fed into refineries half a world away,” it said.

Indeed, what is needed, said the country’s oil industry players, is political will.

Whether or not the Duterte administration can address the problem remains to be seen. Oil companies can only hope the new government wouldn’t be too distracted in its violent and widely criticized war on drugs to forget other bigger problems the Philippines is facing, including oil smuggling.