Dellosa is right to push new Customs formula

Last Monday’s Gotcha — on Customs Deputy Jessie Dellosa’s and my conflicting computations of smuggled goods’ discrepancies — drew varied reactions from readers.

The question, from actual shipments, was whether the discrepancies exceeded 30 percent, thus making them confiscable for auction, under the Tariffs and Customs Code of the Philippines (TCCP).

Most readers saw where Dellosa and I obviously differed. We used different sets of figures in determining the percentage of discrepancy.

Quoting Customs insiders, I used the goods’ (dollar) values, as declared by the importer and as found by the Customs examiner. In one example: $5,315 declared by importer, versus $7,281 as found by examiner.

Dellosa used the goods’ resultant duties (in pesos), as declared by the importer and as found by the examiner. In the same shipment above: P40,931 declared, against P54,819 as found.

Readers led by Andy A. asked what pertinent laws/rules apply.

The TCCP’s Section 2503, as amended by R.A. 7651, states: “Undervaluation, Misclassification and Misdeclaration in Entry — When the dutiable value of the imported articles shall be so declared and entered that the duties, based on the declaration of the importer on the face of the entry, would be less by ten percent (10%) than should be legally collected, or when the imported articles shall be so described and entered that the duties based on the importer’s description on the face of the entry would be less by ten percent (10%) than should be legally collected based on the tariff classification, or when the dutiable weight, measurement or quantity of imported articles is found upon examination to exceed by ten percent (10%) or more than the entered weight, measurement or quantity, a surcharge shall be collected from the importer in an amount of not less than the difference between the full duty and the estimated duty based upon the declaration of the importer, nor more than twice of such difference: Provided, That an undervaluation, misdeclaration in weight, measurement or quantity of more than thirty percent (30%) between the value, weight, measurement, or quantity declared in the entry, and the actual value, weight, quantity, or measurement shall constitute a prima facie evidence of fraud penalized under Section 2530 of this Code: Provided, further, That any misdeclared or undeclared imported articles/items found upon examination shall ipso facto be forfeited in favor of the Government to be disposed of pursuant to the provisions of this Code.”

From the law, everything starts with the importer’s valuation, declaration, classification, and description of the goods.

But there’s also Customs Administrative Order 10-1993, twinned by Customs Memo Order 64-93. Both set the graduated surcharges when the discrepancies fall below 10 percent, between 10 and 20 percent, and between 20 and 30 percent. Surcharges are based on the goods’ duties, as declared by importer and as found by examiner.

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Aside from my use of the goods’ values and Dellosa’s use of the corresponding duties, we differed on one other point, readers noted. This was in the method of computing the percentage of discrepancy.

Quoting the insiders, I used the formula: value of the goods as found, minus value as declared, divided by value as declared. In the example shipment above: $7,281-$5,315 = $1,966 ÷ $5,315 = 0.369. Per my sources, the discrepancy was 37 percent, so the goods should have been confiscated, and not released by Dellosa.

Dellosa used the formula: duty of the goods as found, minus duty of the goods as declared, divided by duty of the goods as found. So in the same shipment: P54,819 - P40,931 = P13,888 ÷ P54,819 = 0.253. With only 25-percent discrepancy, Dellosa had to release the shipment, upon the importer’s payment of additional duties.

Our difference was in the divisor: the importer’s declared value, or the examiner’s imposed duty.

Laws and numbers operate on common sense. Reader Carlos Castro, a Math teacher, said Dellosa’s formula takes into account the fact that, in all discrepancies, the examiner’s assessed values and duties are always higher than the importer’s declared versions. With the importer’s declared value or duty as the dividend (numerator), and the examiner’s corresponding assessment as the divisor (denominator), the equation will always be less than 100 percent. Dellosa’s method, Castro said, allows back checking of figures.

Using the shipment values above, Dellosa’s method can be presented as: $5,315 ÷ $7,281 = 0.729; the declared value is 73 percent of the assessed, or a 27-percent discrepancy.

Using the duties, Castro said, Dellosa’s method can be checked thus: P40,931 ÷ P54,819 = 0.746; the duty as declared is 75 percent as found, or 25 percent short.

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Reader Marissa O. had a contrary take. She said the importer’s declared value or duty should always be the divisor.

She gave as example an importer declaring a duty of P5, but the examiner assessing the shipment P9.

In Dellosa’s way, it would come out as P9 - P5 = P4 ÷ P9 = 0.444; meaning, the duty is 44-percent short.

The sly importer would argue with the examiner that he owes only P2.20 (P5 x 44%), and so should pay only P7.20 (P5 + P2.20), instead of the P9 that the examiner assessed. The government would lose P1.80.

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At any rate, a new Customs Admin Order 1-2014 has superseded CAO 10-1993 (and CMO 64-93).

The old CAO 10-1993 had three different formulas for computing the discrepancy percentages in cases of undervaluation, misclassification, and misdeclaration (of weight, measurement, or quantity). One of the three formulas uses the importer’s declared duty as divisor; the two others use the examiner’s assessed duty. There are numerous grades for surcharges, which also are low.

The examiner was left with too much discretion -- the ingredient for corrupting the assessment.

The new CAO 1-2014 sets only one formula for undervaluation, misclassification, or misdeclaration. It is uniform: duty as found, minus duty as declared, divided by duty as found — which Dellosa uses.

Under the new rule, most discrepancies will end up less than 30 percent. The undervalued, misclassified, or misdeclared goods will have to be released. But surcharges are higher, and graduations fewer. So, less room for misinterpretation by crooked examiners. Also, eventually, more collections of duties, more goods released for economic activity, and consequently more taxes to collect from manufacturing and trade.

In that regard, Dellosa is right to immediately enforce CAO 1-2014.

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