CBWs in and out concept
Credit to Author: MARK ANTHONY TAMAYO| Date: Wed, 27 Nov 2019 16:56:15 +0000
Last of two parts
IN last week’s column, we discussed the basic concept of a customs bonded warehouse (CBW) in line with the newly issued guidelines under Customs Administrative Order (CAO) 13-2019.
In this column, we shall discuss the associated costs in maintaining and operating a CBW, as well as the requirements that its operators must comply with.
Requirements during operation
The exemption from customs duty and taxes of imported goods entering a CBW is premised on the very nature of a temporary importation, i.e., what goes in, must come out.
The withdrawal of these goods, whether in their original or processed form, must be effected either through actual or constructive export within the prescribed storage period. This is the conditional arrangement under the concept of temporary importation.
Otherwise, if the imported goods remain in the CBW beyond the storage period, or are withdrawn for domestic consumption, the exemption privilege, being conditional, will be forfeited.
Bureau of Customs (BOC) officers and personnel shall be assigned to CBWs to closely monitor compliance with this condition and implement control measures. A CBW operator must provide them with suitable working areas, complete with office equipment and supplies.
To recover the cost of providing these services, annual supervision and service fees, as well as other charges, shall be imposed by the BOC on the warehouse operators in accordance with the schedule provided under the CAO on service fees.
During the operation of the CBWs, operators are required to keep principal books of accounts containing records of the importation and exportation of all goods delivered to and withdrawn from the CBW. They are mandated to maintain a computer-based inventory system that should be readily accessible to the BOC.
For its part, the BOC is required to establish an information and communications technology-enabled system to account for the raw materials used in the manufacture of goods and the resulting wastages for liquidation and to monitor the posting, charging, and cancellation and aging of bonds for CBW.
Wastages, rejects and byproducts in the manufacture of export products shall be properly accounted for and disposed of. These items are generally subject to duties and taxes.
Upon the exportation of the finished goods, the CBW operator is required to cause the liquidation of the warehousing entry and the cancellation of the bonds related to those products.
For monitoring purposes, the CBW operator is required to submit its annual audited financial statements to the district collector not later than 30 days from its filing with the Bureau of Internal Revenue.
Penalties under CAO 13-2019
The BOC is tasked to establish a “Compliance Rating System” that will be used to measure and assess the compliance and performance levels of all CBWs, especially with regard to applicable laws, rules, regulations and other performance factors in consultation with stakeholders. The system will also be used by the BOC as a risk management tool in evaluating any application, or as basis in any action that the agency may take against a CBW.
To this end, the district collector may, under CAO 13-2019, issue a mission order authorizing a representative to inspect the CBW and the bonded goods stored in it and to examine relevant documents, books and records of accounts.
For diversion or unauthorized withdrawal, repacking or unauthorized relocation, penalties on the first offense include payment of duties, taxes and charges due on the goods withdrawn, plus a surcharge of 50 percent of duties, taxes, customs fees and charges found to be due and unpaid. On the second, the penalty includes the suspension of warehousing privileges for six months. On the third, the penalty is the CBW’s closure. The penalty for the third offense also applies if the withdrawal is attended with fraud.
For the late application for renewal of the authority to operate a CBW, the penalties include a fine ranging from P100,000 to P250,000 plus suspension of privilege as CBW operator.
The penalty for late reexportation (for up to six months) is a 2 percent a month of the collectible duties and taxes, counted from the date of expiration of the bond to the date of actual exportation.
On the other hand, the penalty for late reexportation (beyond six months) includes paying the penal amount of the bond, in addition to the 2 percent a month of the collectible duties and taxes counted from the date of expiration of the bond to the date of actual exportation.
Late submission of documents, such as proof of reexportation or authority to cancel bonds issued by the Customs commissioner, will be fined with amount ranging from P1,000 to P6,000 to the penal amount of the bond.
The penalties are without prejudice to criminal and other liabilities imposed under the Customs Modernization and Tariff Act and other laws.
Moreover, the BOC may have all existing CBWs reevaluated, reclassified and reorganized to ensure compliance with the requirements and conditions of the CAO.
Other considerations
While there are benefits under a CBW regime, a disadvantage may be perceived with regard the restriction on the type of manufacturing involved in the CBW. The raw materials entered into the CBW will be limited to the specific manufacturing process based on its approved formula of manufacture and as stated in the terms and conditions of the CBW license. Thus, the operator is unable to engage in any other form of manufacturing of the raw materials, which is not so stated in the license.
An increase in security requirements for the CBW may also be viewed as a disadvantage. Considering that the duties and taxes on the imported raw materials have not been paid, the BOC imposes strict security requirements with regard to the entire facility. Closer supervision by the BOC is likewise imposed.
The pros and cons of setting up a CBW should be carefully evaluated. Overall, the program remains attractive, particularly for those primarily engaged in the export of manufactured goods.
Mark Anthony P. Tamayo is a CPA-lawyer and a partner of Mata-Perez, Tamayo & Francisco (MTF) Counsel. His areas of expertise include tax, customs and trade advisory, planning, controversy and litigation; corporate organization, reorganization and restructuring; and investments and incentives.