Thorn in the side

The Bureau of Customs has been a big thorn in the side of every administration. Smuggling, which the bureau is supposed to keep in check, was described as “a national calamity” in 1965, when the dictator Ferdinand Marcos began his first term. Nearly 50 years later, it has gotten worse.

In January the Federation of Philippine Industries presented a study showing that from 2002 to 2011, the government lost more than P1.33 trillion in revenue due to smuggling. In February a Washington-based research advocacy organization, Global Financial Integrity (GFI), disclosed that the Philippine government lost an estimated $3.85 billion in tax revenue in 2011 alone due to widespread underdeclaration of imported goods, or technical smuggling.

Smuggling is the reason Customs has failed to meet what it is tasked to collect. Last week it reported that collections in April were more than P5 billion short of the P35.79-billion target. This was the fourth consecutive month this year that the bureau has failed to meet its goal. Revenue for the first four months was P117 billion, more than P13 billion short of its goal for the period. Worse, nobody expects Customs to meet its annual collection target of P408.1 billion for 2014.

A major problem faced by the bureau is fundamental: The Philippines is an archipelago, and tens of thousands of workers—backed by an intensive computer network system—are needed to guard all possible points of entry for imported goods. The new Customs commissioner, former finance undersecretary John Phillip Sevilla, laments that the bureau’s 3,600 personnel nationwide have only 994 computers with limited Internet connections, “not enough to do the job” of controlling smuggling. “Admittedly, there is still rampant smuggling [today],” Sevilla admits, because Customs has to deal with “systems that don’t work and where processes are still done manually—a working environment that’s inefficient and … that makes it easy for corruption.”

Still, the private sector has high hopes under Sevilla’s stewardship of Customs. For one, Sevilla has been doing what his predecessors failed to implement, or had difficulty implementing—the elimination of the discretion of examiners in cases of undervaluation or misdeclaration of imported goods. “We continue to review the processes to make [these] as clear as possible. Ideally, examiners should not have to make the decisions. They should just process [the fully electronic processing of customs transactions],” Sevilla has explained.

When Angelito Alvarez was Customs chief at the start of the Aquino administration, he pushed for electronic transactions to curb human intervention in importers’ dealings with the bureau, which had been identified as the major cause of corruption. In its report, the Washington-based think tank GFI pointed out that the “misinvoicing” of goods—or the fraudulent misrepresentation either through underdeclaration or overdeclaration of the actual value of goods that reached Philippine ports—has been very dominant. It said this “epidemic of misinvoicing” on Customs transactions has grown so much in the past decade that about a fourth of the total value of all goods imported into the Philippines—or $1 out of every $4 in value—went unreported to Customs officials. “To put this in perspective, the $3.85 billion in lost tax revenue in 2011 was more than twice the size of the fiscal deficit and equal to 95 percent of the total government expenditures on social benefits that same year,” the GFI said.

But there is hope. Sevilla promises that by September, everyone who needs a computer would have one and would no longer have to share it with other employees. Also by September, he promises, all Customs offices in Manila would have the best Internet access. By December, all ports would have Internet access “because information technology is key to where we want to be a few months from now.” And by June 2015, he says, he is optimistic that the bureau will be able to “offer the public a fully electronic and paperless processing of Customs transactions.”

If Sevilla still fails in this, then it would be better to abolish the entire Customs bureaucracy and start from scratch, as the bureau’s former chief, Ruffy  Biazon, suggested a day after President Aquino, in his State of the Nation Address last year, identified the Bureau of Customs as the problem his administration was finding hard to resolve.

Sevilla better do something drastic soon.