Taxwise Or Otherwise

One of the greatest challenges some traders face is to have their shipments put on hold by the Bureau of Customs (BoC) due to tariff classification issues, errors on valuation, and incomplete documents, among others. Often, some importers do not conduct a regular review of their tariff classification codes for accuracy and compliance and as such, they can be potentially paying more duties on their products than they are actually liable for.
For taxpayers seeking guidance on paying the correct tax, or availing of exemption from certain taxes, they may secure confirmatory rulings from the Bureau of Internal Revenue. But, what about importers and exporters who are seeking clarification on their tariff classification? Do they also have an option to secure an advisory ruling when faced with such dilemma? How can the present procedure be made more efficient to ensure predictability in import/export processing as well as to assist traders in making informed decisions in their trade transactions?
Since duties and VAT on importation are computed not only based on the dutiable value of the goods but on their corresponding classification under the ASEAN Harmonized Tariff Nomenclature (AHTN) of the Customs Modernization and Tariff Act (CMTA), certainty as to the classification of the goods has a significant impact on the duties and VAT liability of the importer and the collection effort of the BoC. Thus, it is important for importers to be provided with a support mechanism that ensures access to tariff advice, reduces errors in classification and valuation, as well as increases the rate of compliance with customs rules.
Under Section 1100 of Republic Act No. 10863 or the CMTA, which was passed into law on May 30, 2016, importers/exporters have the option to file an application for Advance Ruling on tariff classification of goods with the Tariff Commission (TC). This option has existed even before the passage of the CMTA, but is not generally availed by traders who face tariff classification difficulties due to lack of awareness of its existence.
An advance ruling on tariff classification is defined as “an official written decision issued by the TC which provides the applicant with the appropriate tariff of goods under the AHTN of the CMTA prior to an importation or exportation.”
Procedurally, an importer/exporter may submit an accomplished application form for Advance Ruling on Tariff Classification (TC Form No. 1) along with the supporting documents for pre-clearance by the Commodity Specialist of the TC. The form can be downloaded from the Tariff Commission’s website at To facilitate processing, the supporting documents must consist of information and related materials that warrant correct classification of the good (e.g. sample of the product, technical catalogues/brochures, duly certified complete product composition, among others). The Commission, at its discretion, may also require submission of additional documents or on-site verification as it deems necessary. A filing fee of P500 and Legal Research Fund Fee of P10.00 must be paid upon submission of the application. An application for Advance Ruling shall cover only one product or good, and must be filed at least 90 days before the actual importation.
From receipt of the application, the TC shall issue the Advance Ruling within 30 days, provided the same is sufficient in form and substance and all additional requirements, as requested by the Commission, have been completely submitted. The Advance Ruling shall be valid for a period of five years from the date of its issuance unless earlier revoked or modified due to changes in facts or circumstances on which the ruling is based.
However, bear in mind that the TC may decide not to issue the ruling on the following grounds:

• If the applicant fails to provide any additional information requested within a reasonable period as required by the TC, without prejudice to the filing of a new application;

• If the goods involved are the subject of a pending court litigation or of an administrative review or of an appeal involving tariff classification;

• If the TC was not allowed to conduct on-site verification; and

• If there is misrepresentation or other similar cases.

While some trading companies have their own internal customs procedures in place, some would prefer to outsource tariff classification of their goods to third party agents or duly licensed brokers. Nonetheless, the companies, still being the “importer/exporter of record”, are not immune from risk of inaccurate tariff classification, which can create a domino effect throughout their trade transactions.
Further, we should recognize that the BoC, also being a collection agency, is under growing pressure to raise more revenue for the government, and therefore will not be lenient in reviewing importation documents. As a consequence, it may enforce legal measures to hold shipments or impose penalties as appropriate, should they find the tariff classifications of goods questionable at the time of entry.
Given these challenges, an advance ruling can prevent delays in processing shipments and provide substantial cost savings to traders. Moreover, it simplifies clearing of goods at the border and minimizes surprises or unpredictable factors arising from erroneous classification.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Toni Rose L. Capistrano-Flojo is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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