Tax on re-exports

AMADO P. MACASAET

‘The incentives make smuggling look legal. It must be stopped.’

THERE is much wisdom in the proposal of Finance Secretary Cesar Purisima to tax reexported oil products. At present these products are not taxed if they are not consumed locally.

But it did not take too long for Purisima to know that finished products from crude oil are actually consumed in the Philippines although customs records may show they are re-exported.

This indirect smuggling denies government billions of pesos in revenues since oil is the biggest single import product of this country.

Purisima might extend his plan to cover customs bonded warehouses. Under the law, raw material imports are not taxed but the importer posts a bond to keep goods are kept in a customs warehouse and may be withdrawn to make a final finished product which should be re-exported. The bond is then liquidated.

In actual practice, the finished products are sold in the domestic market. No tax is paid because the documents show they are re-exported.

This anomaly cannot happen without the cooperation, in fact connivance of customs people. I personally know of a case where an importer of steel bars was able to document the product as raw materials.

The documents show that the steel bars were kept in a bonded warehouse. The truth is after unloading from the vessel, the product went straight to the factory of the importer.

The bond was liquidated. The steel bars were sold in the local market. Not a cent of a tax was collected. The palms of some customs people were greased.

The activity is outright smuggling.

The trouble with customs has always been giving incentives for the benefit of the economy. Tax exemption from oil imports on condition that the product is to be converted into a finished good is glaringly similar to how customs loses revenues from goods kept in the bonded warehouse.

The incentives make smuggling look legal. It must be stopped. Purisima has a good mind to stop the practice.

However, there are importers who comply with the law. They re-export the finished product and do not pay a tax.

Purisima might think of requiring all importers of raw materials that will be re-exported as finished products to pay all taxes. If it is proven that the products did not find its way into the domestic market, the importer-exporter will be refunded the tax deposits.

Theoretically, crude oil for the refineries should not pay a tax. Thus the one per cent tariff was removed. On this alone, Purisima said the government lost P6.4 billion. It was presumed to be a legal loss.

The purpose of removing the tariff on crude is to prevent a further rise in the price of fuel products refined in the Philippines.

Importing oil for conversion into a final product for re-export is another story. Under the Customs and Tariff Code, excise tax of P4.35 per liter is collected from regular gasoline.

A higher rate of P5.35 per liter is collected from leaded premium gasoline. Unleaded fuel pays P4.35 per liter; P3.67 is paid per liter of aviation turbo gas while P3.67 per liter is collected from kerosene used for aviation.

The wonder of wonders is fuel refining in the Philippines has shrunk to a volume that forces the economy to import finished products from Singapore. Caltex used to be a large refinery. Today it is an importer-trader of fuel.

Pilipinas Shell is not operating at full capacity. The production of Petron, the largest refinery is nowhere close to total demand.

How do the importers of crude oil justify the conversion into a final product for re-export when the country is a net importer of practically all kinds of fuel? There is no justification at all.

There is outright smuggling protected by a law that exempts re-exports from taxes. If Purisima can impose a tax on "re-exported" fuel or require the legitimate importers to put in escrow the tax equivalent of their products, it would be extremely easy to meet the collection target of customs.

Include the products or raw materials that pass through the customs bonded warehouse although much of such materials are actually finished products. The problem of not meeting the collection target is met with half an import.

The bigger effort is the will to do right and the courage not to yield to the pressures of powerful people who are protectors of big-time smugglers.

Let’s get on with your idea, Secretary Purisima. If Malacañang says the idea is not good, it would be time to resign. Customs Commissioner Ruffy Biazon should also resign.

They can be replaced with crooks.