Customs' Voluntary Disclosure Program

Last July 6, 2007, Customs Commissioner Napoleon Morales issued Customs Memorandum Order No. 18-2007 providing the rules and regulations for the implementation of the Voluntary Disclosure Program (VDP), a policy mechanism tailored after global best customs practices. It is a special customs platform in conjunction with the Post Entry Audit (PEA) Program.

VDP is a non-punitive facility for importers to voluntarily disclose or report erroneous, inaccurate or insufficient information on import entry declarations and underpayments of the corresponding duties and taxes.

Now that the mechanism for the VDP has been implemented, importers, who unknowingly may have wrongfully declared their transactions in their import entry declarations as well as payment of the corresponding duties and taxes, may come forward to Customs to voluntarily disclose such errors so that these can be properly assessed. This may come in the form of products with incorrect tariff headings, imported articles that have been misclassified, erroneous use of customs value, etc. – all requiring the need to settle correctly the deficiencies incurred with Customs.

Failure to disclose these instances and waiting until Customs issues the Audit Notification Letters (ANLs) have significant commercial consequences. This is in view of the steep customs audit penalties which range from a minimum of 50% or up to a maximum of 800% of the assessed revenue loss. In extreme cases, importers can even be held criminally liable for their accountabilities.

Putting the VDP in perspective, the BoC, which is under pressure to meet its revenue commitments, is actively encouraging importers to apply under the VDP instead of highlighting the penalties. A pioneering VDP example is the case of boxing icon Manny Pacquiao who utilised the facility to settle the customs duties and taxes on his initially under assessed imported Porshe Cayenne luxury SUV.

For importers especially those that import frequently, instead of waiting for Customs to issue the ANLs, it is important that they consider reviewing their customs compliance records (transaction value, tariff headings of their commodities, supplemental declaration form, royalties, etc.), and ascertain as to whether erroneous, inaccurate or insufficient submissions and payments have been made. It must be emphasised, especially for importers relying heavily on broker enterprises, that as the Importer of Record (importer declared in the commercial invoices and owner of the goods), they are fully accountable for the information submitted and declared to the Bureau. It is timely that while Customs is more encouraging with the implementation of the VDP, a review of the documents which they rarely look into (as they rely heavily on their brokers) should be considered.

The benefits of coming into fore are significant for importers considering that they are exempt from having to pay any fines or penalties on the amount of the deficiency in their customs disclosure.

Moreover, they will not be considered for any customs Audit examinations within the next two years and more importantly, accorded a “last priority status” in the audit selection process.

It must be understood, however, that not all importers are eligible to apply under the VDP. Importers 1) who have already been issued ANLs; 2) with transactions that are covered by a final assessment issued by the Commissioner of Customs; and 3) covered by cases already filed or subject of pending ruling requests are not eligible to the Program.

From the point of view of regulation, the VDP will exact less administrative effort on the part of Customs as it will not be burdened to profile all importers for purposes of investigation and imposition of penalty. Instead, the Program will provide an avenue for “violators” to come to the fold and discuss how it must efficiently address its concerns as required under Customs regulations.

The VDP is a very good opportunity especially for companies that want to improve their customs compliance status, instead of waiting for the issuance of the ANL or for Customs to knock on their doors.