Re-establishment of the prior disclosure program

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With the issuance of Executive Order No. 46 on Oct. 20, 2017, the duty of conducting the post clearance audit on imports was transferred to the Bureau of Customs (BoC) from the Department of Finance’s Fiscal Intelligence Unit. Along with the reversion of the Post Clearance Audit (previously known as the Post Entry Audit) to the BoC, it also brought back the Voluntary Disclosure Program (VDP) now called the Prior Disclosure Program (PDP).

Under Customs Administrative Order (CAO) No. 01-2019, the PDP allows importers to voluntarily disclose and report to the BoC simple errors in their import declarations and payment of duties and taxes for correction. However, unlike the previous VDP where no penalties were imposed, the PDP imposes penalties that may be waived with the approval of the Secretary of Finance.

As in the case of the VDP, the PDP is available under two scenarios: (a) before the receipt of an Audit Notification Letter (ANL) or (b) upon receipt of an ANL but before the field audit to be conducted by the Post Clearance Audit Group (PCAG).

The penalty rules under the PDP are enumerated below:

• For importers who have not yet received an ANL, deficiency duties and taxes will only be subject to 20% interest per year which is counted from the date of the final assessment of imported goods. However, additional duties and taxes paid due to royalty payments, filed within 30 days from the date of payment or accrual of the proceeds, are not subject to any penalties.

• For importers who have already received an ANL, deficiency duties and taxes will be subject to a 20% interest with a penalty of 10% of the deficiency duties, taxes and interest.

To avail of the PDP, the following procedures will apply:

1. The applicant shall accomplish BoC Form B (PDP application form) with an Affidavit of Undertaking signifying the importer’s agreement that should the application be denied, they will be subject to a full audit by the PCAG, and any resulting deficiency duties and taxes shall be subject to the corresponding penalties and 20% interest. Once accomplished, include the above with the payment of the disclosed amount as indicated in the form to the BoC — PCAG, which shall in turn issue the corresponding BoC official receipt (BCOR).

2. The applicant shall submit the duly accomplished BoC Form B, Affidavit of Undertaking, and BCOR to the PCAG for further verification and approval.

3. Upon approval of the PDP application by the PCAG and the Commissioner of Customs (CoC), the application papers shall be forwarded to the Secretary of Finance for final approval, if there is a request for waiver of penalties, interest, fine or surcharge.

4. Upon approval of the PDP application by the PCAG, the CoC, and the Secretary of Finance, the BoC shall inform the applicant in writing about the close of the audit.

However, the PCAG may opt to deny the PDP application and recommend a full audit of the applicant with the approval of the CoC. Consequently, the applicant will be subject to a full audit, and any resultant deficiency duties and taxes shall be subject to the imposition of 25% to 600% penalties and 20% interest. Any payment made through the PDP application by the importer shall be credited against the deficiency assessment that may be issued by the BoC.

In the processing of the PDP application, the following issues may arise upon review of the applicant’s import applications: the proper valuation of imported goods, computation of royalty payments, non-inclusion of fees or charges on the dutiable value or the landed cost, etc.

In consideration of these concerns, applicants of the PDP should make a complete disclosure of their issues to ensure that their application will not be denied after review. Applicants may consider seeking expert advice and assistance to mitigate the risk of denial, to fully maximize the benefits and available rights they are entitled to under the BoC rules and regulations, and to raise defenses in the protection of their rights.

Although the benefits of the PDP are not as liberal as those in the previous VDP, it could still be considered a good opportunity for the importers to correct their import declarations, evaluate their customs practices in compliance with the customs rules & regulations, and reduce the penalties that could be incurred if the BoC–PCAG proceeds with the audit of their import transactions. The PDP not only assists the importer applicant with the proper declaration of their import transactions but also supports the BoC in its bid to increase revenue collection and spur economic growth in the country.

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.


Mikhail J. Escoto is a senior associate at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

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