Sticky de minimis rule

MANILA, Philippines – To restore fair competition, protect local industries and improve government revenue, the Philippine Retailers Association (PRA) recently petitioned the Bureau of Customs (BOC) to do away with the de minimis (DM) rule on imported goods.

That rule, which has been in effect since 2016, exempts imported products valued at P10,000 or less from customs duties and taxes.

According to the PRA, the preferential treatment allows foreign goods to enter the country without contributing to the country’s tax base and unfairly compete with local products that pay taxes.

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In the context of international trade, de minimis (a Latin phrase that means “the law cares not for small things”) means that if the value of a product is so low, it is not worth the time and effort to determine its true value for purposes of computing the duty or tax that should be imposed on it.

The idea is, customs and tax staffmembers would be more productive in the examination and assessment of high value imported products, rather than monitor penny ante importations.

The unwritten assumption (or expectation) in the DM rule is that importers would truthfully declare the value of their goods when they are shipped in.

And that the fear that if they get caught undervaluing them or breaking them into several parts to come within the threshold cost, which could lead to administrative penalties, would incentivize them to be honest in their pricing.

But considering the apparent culture of corruption in the BOC, the threat of sanctions is more apparent than real and can be avoided with the right “settlement” propositions.

Bear in mind that importers are business people who want to extract the most profits they can from their goods through all means possible without getting into legal trouble.

If the price of their importation exceeds the DM threshold and therefore requires them to pay duties and taxes, they would have no choice but pass on those additional costs to their customers.

It would go against the grain of standard business practice (or even human nature) to expect them to absorb those costs and be content with minimal profit or, worse, suffer losses from those products.

The concerns raised by the PRA about the adverse effects of the DM rule on local industries are well-founded.

It is common knowledge that online sales transactions, which gained a lot of traction during the 2020 pandemic, had been skillfully used by companies based in China to bring billions of pesos worth of goods into the Philippines using the DM rule.

Their lower production and shipping costs and exemption from customs duties and taxes have put locally manufactured products of similar nature at a serious disadvantage.

Undoubtedly, subjecting imported goods valued at P10,000 or less to standard customs scrutiny would require the deployment of BOC personnel who would be otherwise engaged in other activities in the country’s ports of customs entry to undertake that task.

As things stand at present, the BOC has its hands full guarding against misdeclaration and undervaluing of imported goods and the entry of prohibited products.

The question is posed: How much in additional customs duties and taxes may be collected if the DM rule is cancelled and all goods, regardless of their declared value, are made to undergo customs assessment?

If that figure is substantial or exceeds the cost of the time and effort that the BOC would spend for checking on goods covered by the DM rule, then doing away with the rule would be worth it.

But if it is only equal to or, worse, less than those costs, then maintaining the DM rule would be justified because it would allow the BOC to concentrate its efforts on big ticket importations.

The ball on this issue is in the PRA’s court. If it can present empirical data that show the revenue advantage of removing the DM rule, the BOC may have no reason not to grant PRA’s petition. INQ

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