P900 million lost to rice import undervaluation

The Federation of Free Farmers (FFF) sought to refute claims by the Bureau of Customs (BOC) that increased tariff collection from imported rice in 2021 were due to the agency’s improved import valuation system.

The BOC recently reported that tariff collection had risen by 58 percent to P2.04 billion in January 2021 compared to the same period last year. The bureau also claimed that the average valuation of imported rice grew by 11.5 percent.

But higher collections were the normal effect of rising international rice prices since the last quarter of 2020. The volume of imports also grew from 380,140 metric tons in January to February 2020 to 492,268 metric tons in the same period this year.

A more detailed analysis of the BoC’s own data on imports, however, revealed that the degree of undervaluation of rice imports actually worsened in 2021.

During the first two months of 2021, declared import costs were 22 percent lower on the average than the BoC’s own reference rates. For the whole of 2020, the average discrepancy was only 20 percent.

Between January and February 2021, 89 percent of total import volume could be considered as undervalued since declared import prices fell below BOC reference prices. In 2020, only 80 percent of imports were technically undervalued.

The FFF calculated government losses from uncollected tariffs at around Php 900 million in just the first two months of 2021 due to the unabated undervaluation of imports. This is in addition to the almost P5 billion that was lost in 2019 and 2020 due to misdeclaration of import values.
The FFF also questioned the BoC’s claims that it had taken steps to ensure proper classification of rice imports.
There has actually been no change in the classification system since our dialogue with BoC officials in July 2019.  Rice of the same grade and quality continued to be classified under either wrong or different tariff lines.
The BoC’s weekly memorandum on rice reference prices still does not include prices for certain grades of rice from various countries that have been regularly supplying rice since 2019.

Without these reference prices, a Customs examiner cannot determine properly if a shipment is undervalued or not. In turn, importers undervaluing their shipments can escape detection by suggesting to examiners that their shipments be classified under tariff lines that have no reference prices.

The FFF noted, for example, that several shipments of rice with 5 percent broken grains from China, which were apparently routed through Singapore, had an average declared FOB value of only P12.12 per kilo. This was significantly lower than rice from Pakistan or Cambodia that cost over P16 per kilo, or Thai and Vietnam rice valued at P19 per kilo or more.
Although clearly undervalued, these shipments probably evaded questioning because the BoC had no reference prices for rice coming from China.

The FFF further called on the BoC to publish the results of its audit of 2019 and 2020 import transactions and to report on its efforts to collect additional tariffs and penalties from importers who are proven to have undervalued their shipments.

(Editor’s note: The author if national manager of Federation of Free Farmers)

TSB