Plugging loopholes

If there is one sure fire way to raise more money for the government’s coffers, it is by plugging loopholes in the system.

The incoming administration of President Noynoy Aquino has promised to make the lives of the Filipinos better. Noynoy himself has said this will not be done by imposing more taxes or raising the tax rates, but rather by improving collection efforts.

There has been so much focus on the Bureau of Internal Revenue that many seem to have forgotten that the BIR is only one of two agencies primarily tasked to raise revenues for the government. The other one, of course, is the Bureau of Customs.

President Noynoy’s main campaign pitch has been putting an end to corruption in government. If is really serious about his promise, then may we suggest that he make the customs bureau his test case.

While outright smuggling per se cannot be equated with corruption, technical smuggling is, because the latter cannot exist without collusion between customs officials and the technical smugglers. Outright smuggling means going through the backdoor. Its occurrence is minor compared to technical smuggling which happens right on the frontdoor.

Technical smuggling means misdeclaring and/or undervaluing goods brought into the country for the purpose of evading the payment of the correct amount of import duties. It will also include cases of imported raw materials entering the country duty-free under the bonded warehousing scheme, meaning they are supposed to be reexported as part of finished goods, but are instead sold in the domestic market or dumped at prices much lower than locally produced raw materials, as well as declaring the imported goods to be of a lower weight.

To cite an example, wheat flour has a seven percent import duty and VAT of 12 percent. But if it is misdeclared as soybean meal, the importers do not have to pay anything because soybean meal can be brought in tax and duty-free.

One industry that is hurting from the recent spate of technical smuggling is the local flour milling industry. Unfortunately, the term of President Arroyo is about to end without anything being done to address this matter.

Local flour millers have already raised the alarm over the rampant technical smuggling of Turkish flour.

According to the Philippine Association of Flour Millers (Pafmil), Turkish flour is undervalued at $30 per metric ton when its real value is $300 per ton.

Pafmil said in a report submitted to Malacanang that of the over 86,000 tons of flour imported from Turkey in 2009, some 19,000 tons were undervalued, causing the government to lose around P16.9 million in revenues.

From January to February this year alone, 6,000 tons of the 13,695 tons of Turkish flour brought in in were undervalued, with government losing another P3 million from lost import duties and VAT.

These incidents of technical smuggling of Turkish flour are happening at the Port of Manila and the Manila International Container Port, only a few minutes away from Malacanang and right under the very noses of our customs personnel.

Not only is Turkish flour undervalued, the weight is also being misdeclared at half the volume.

Pafmil executive director Ric Pinca has said that collusion among importers, brokers and even custom officials and employees makes it hard for them to put a stop to this technical smuggling.

What’s wrong with technical smuggling? Aside from the fact that the government is earning less, technical smuggling is undermining our local industries which would not be able to survive against unfair competition. It is these local industries that employ out very own.

But in the case of Turkish flour, technical smuggling brings in a whole new set of problems. Pinca has said that a study by the University of Istanbul in Turkey had raised concerns over the presence of aflatoxin and ochratoxin, two types of cancer-causing mycotoxins, in Turkish flour.

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