Editorial

Everyone knows it

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The irony in the boiling oil-smuggling issue is that everyone knows how and where it is being done and who are doing it, yet no one seems brave, or foolish, enough to do something about it. In fact, what the head of Petron Corp. told the Inquirer last week—that oil smuggling has resulted in P40 billion in yearly foregone revenues for the government—is old news. On Feb. 6, 2012, President Aquino said in a keynote address at the 110th anniversary celebration of the Bureau of Customs that oil smuggling was costing the government some P40 billion in revenues a year—an amount that could fund the construction of 218,000 low-cost housing units, or half of the total housing units needed for informal settlers.

The government is aware of the ways oil products are smuggled. One is through direct means: Small oil tankers or fishing boats load diesel or gasoline from a mother ship stationed in international waters. Another is through “misdeclaration”: Finished products are declared as raw materials, like aromatic hydrocarbons or catalysts, which are exempt from excise taxes. Yet another is through diversion: Oil products imported for tax-exempt entities such as those in free ports and economic zones are diverted to the local market and sold by gas station dealers. In still other cases, companies, in connivance with crooked customs people, undervalue oil imports or declare a quantity lower than the actual to evade payment of higher duties and taxes. These forms of smuggling were disclosed exactly four years ago, in April 2009, by then Customs Commissioner Napoleon Morales during a hearing of the House of Representatives’ committee on energy.

The sad part is that stopping oil smuggling is not “rocket science,” as Petron’s Ramon Ang had pointed out, because the government “would only need to closely monitor special economic zones and other ports.” Fernando Martinez, chair of an association of small oil players, said his group had presented to the Department of Finance a proposal on how to check oil smuggling in economic zones: “Charge all imports upon entry and just give rebates to those who use the fuel within the zone.” It’s a very simple solution that the government tried to adopt last year, when the Bureau of Internal Revenue issued Revenue Regulation 2-2012, which would have changed the tax administration on petroleum products by requiring the upfront payment of taxes and duties on all imported oil. If the oil was to be used within special economic zones—and therefore qualified for tax exemption—the tax-exempt users would have to file for refund. But implementation was stopped by an injunction issued on March 16, 2012, by a regional trial court. Last Feb. 14, the Court of Appeals scrapped that injunction and directed the customs bureau to implement the new tax scheme and hold oil imports until payments of the value-added tax and excise tax had been made.

This will hopefully plug the loophole in the free ports and ecozones. Still, the government should do more. It is not lacking in suggestions to curb oil smuggling. One worth noting is for invisible markers to be put on oil products for which correct taxes have been paid; upon counter-checking, products without the markings will be considered smuggled. The Department of Energy should also speed up what Energy Secretary Carlos Jericho Petilla said about investing in new machines that would verify if the fuels in a gas station follow Philippine standards of E10 (or gasoline with a 10-percent ethanol blend). Hopefully, DOE personnel can identify the smugglers because if a gas station does not have the E10, the fuels it is selling are smuggled.

More important, the DOF must implement soonest a system of port accreditation for oil and other commodities at high risk of smuggling. As Finance Secretary Cesar Purisima indicated, only particular ports will be accredited for the importation of these items. The ports must submit monthly reports to the DOF that will be cross-checked on a per-volume and per-vessel basis with data from the DOE and Philippine Ports Authority.

Purisima earlier said that the Philippines’ new investment-grade rating is “the clearest and most definite affirmation that good governance is indeed good economics.” True, investors will give weight to such a rating, but not as much weight as they will to factors that result in an uneven playing field, such as the degree of smuggling happening. Just ask investors who are already here.

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