Billions in taxes lost in oil smuggling
DEMAND AND SUPPLY By BOO CHANCO - The Philippine Star
Oil smuggling is not as visible as the smuggling of flashy luxury cars. But the revenue leakage is far greater. If Gary Teves means business, he would spend more time and energy working on this one.
Ate Glue, Gary Teves and the Customs people have to redeem themselves from that “hot car carnage” episode. It was a PR gimmick that didn’t deliver. Probably it was because they hyped it too much without proper prior study. I heard Gary trying hard to explain later on to Korina and Ted on DZMM that the really hot cars they earlier mentioned couldn’t be touched due to legal technicalities. Korina was not happy with Gary’s explanation.
The “carnage” didn’t deliver the pogi points expected because it also went against the grain of common sense from common folks. Every other guy you meet on the street would say the cars were “sayang” and should have been sold in auction instead to raise money for the poor or for other government projects.
People disregard the fact that selling those cars in auction had been part of the modus operandi of the car smugglers for years. The same smugglers who imported the cars, or their proxies, would bid for them and save on taxes because they somehow manage to fix the bids at much lower levels than taxes and penalties.
Then there are those who say that by ordering the destruction of the cars, Ate Glue may have delivered a message to smaller smuggling syndicates but she created a smuggling monopoly under the protection of someone really powerful that no Customs official would dare cross. That may or may not be true but it sounds credible to the common tao given the public’s low confidence level on this administration’s ability to do the right thing.
The PR disaster over the “carnage” was compounded by the scandal surrounding the DOF junking of a ruling made by dismissed BIR Chief Jojo Buñag on the increased specific tax that should be levied on each pack of Pall Mall cigarettes. Government stands to lose close to P100 million because DOF reversed Jojo’s ruling that was perfectly legal based on the new sin tax law. And to think… Jojo was fired because he was not collecting enough.
The credibility of this administration’s tax collection effort will again be severely tested by the seriousness of their efforts to stop the scandalous rampant smuggling of petroleum products. Smuggled oil products now account for about 20 percent of petroleum products being sold in the market. Diesel and Dual Purpose Kerosene account for most of those. About P10 billion is lost in tax revenues per year for every 10 percent of the market demand that is supplied by smugglers… so P20 billion a year is lost.
The oil companies have been complaining about this problem for quite a while now. They find it strange that while the economy has been growing five to six percent every year for the last three years, reported oil and petroleum product imports have been declining on an average about seven percent per year from 2005 to year to date 2007. Even if economic growth is spurred by services and agriculture which are low in energy intensity, one would expect some growth. Even if we take into account the shift to natural gas and coal for the power sector, the worse case scenario is flat growth.
There must be pretty politically influential people behind the smuggling of petroleum products for it to flourish at a time when Gary Teves is nervously scrounging for revenue sources to meet fiscal targets. The smugglers also provide unfair competition to the oil companies that pay the proper taxes.
I have asked my former colleagues in the oil industry and they enlightened me on how smuggling is done these days. One way is to under declare volume or value or both. Main savings is on 12-percent VAT plus the three-percent duty. Diesel is now zero specific tax. For dual purpose kerosene (DPK), they declare the shipment as kerosene but actually sell as Jet A1 used by aviation. There is a big difference in specific tax.
Smuggling is most rampant in Subic. For imports into Subic, they ship it out as if it is re-exported so that no duties and taxes are paid. By ship, it is either declared as export to another country or as bunkering to an international vessel. By land, it is declared as intended for a locator in a special economic zone which is treated as export. Subic supposedly accounts for about 30 to 40 percent of smuggled products. Other suspected smuggling points include a Bataan import facility and a depot in Bicol.
In fairness to DOF, they have recently started to implement some of the recommendations of the Petroleum Institute of the Philippines to control oil smuggling. For instance they are now putting marker dyes for kerosene imports (therefore cannot be used as Jet fuel), marker dyes for diesel re-exported out of Subic (prima facie evidence if detected in locally sold diesel). They have also started to reconcile PEZA fuels receipts versus issuances from Subic as smugglers are using fake delivery orders to genuine locators.
The Petroleum Institute also expressed support for recommendations of the Presidential Anti Smuggling Group (PASG) now awaiting approval by Ate Glue to include pre shipment inspection to determine quantity, price and quality. I guess the next move is Malacañang’s.
Oil smuggling is not as visible as the smuggling of flashy luxury cars. But the revenue leakage is far greater. If Gary Teves means business, he would spend more time and energy working on this one.
Oil smuggling is not as visible as the smuggling of flashy luxury cars. But the revenue leakage is far greater. If Gary Teves means business, he would spend more time and energy working on this one.
Ate Glue, Gary Teves and the Customs people have to redeem themselves from that “hot car carnage” episode. It was a PR gimmick that didn’t deliver. Probably it was because they hyped it too much without proper prior study. I heard Gary trying hard to explain later on to Korina and Ted on DZMM that the really hot cars they earlier mentioned couldn’t be touched due to legal technicalities. Korina was not happy with Gary’s explanation.
The “carnage” didn’t deliver the pogi points expected because it also went against the grain of common sense from common folks. Every other guy you meet on the street would say the cars were “sayang” and should have been sold in auction instead to raise money for the poor or for other government projects.
People disregard the fact that selling those cars in auction had been part of the modus operandi of the car smugglers for years. The same smugglers who imported the cars, or their proxies, would bid for them and save on taxes because they somehow manage to fix the bids at much lower levels than taxes and penalties.
Then there are those who say that by ordering the destruction of the cars, Ate Glue may have delivered a message to smaller smuggling syndicates but she created a smuggling monopoly under the protection of someone really powerful that no Customs official would dare cross. That may or may not be true but it sounds credible to the common tao given the public’s low confidence level on this administration’s ability to do the right thing.
The PR disaster over the “carnage” was compounded by the scandal surrounding the DOF junking of a ruling made by dismissed BIR Chief Jojo Buñag on the increased specific tax that should be levied on each pack of Pall Mall cigarettes. Government stands to lose close to P100 million because DOF reversed Jojo’s ruling that was perfectly legal based on the new sin tax law. And to think… Jojo was fired because he was not collecting enough.
The credibility of this administration’s tax collection effort will again be severely tested by the seriousness of their efforts to stop the scandalous rampant smuggling of petroleum products. Smuggled oil products now account for about 20 percent of petroleum products being sold in the market. Diesel and Dual Purpose Kerosene account for most of those. About P10 billion is lost in tax revenues per year for every 10 percent of the market demand that is supplied by smugglers… so P20 billion a year is lost.
The oil companies have been complaining about this problem for quite a while now. They find it strange that while the economy has been growing five to six percent every year for the last three years, reported oil and petroleum product imports have been declining on an average about seven percent per year from 2005 to year to date 2007. Even if economic growth is spurred by services and agriculture which are low in energy intensity, one would expect some growth. Even if we take into account the shift to natural gas and coal for the power sector, the worse case scenario is flat growth.
There must be pretty politically influential people behind the smuggling of petroleum products for it to flourish at a time when Gary Teves is nervously scrounging for revenue sources to meet fiscal targets. The smugglers also provide unfair competition to the oil companies that pay the proper taxes.
I have asked my former colleagues in the oil industry and they enlightened me on how smuggling is done these days. One way is to under declare volume or value or both. Main savings is on 12-percent VAT plus the three-percent duty. Diesel is now zero specific tax. For dual purpose kerosene (DPK), they declare the shipment as kerosene but actually sell as Jet A1 used by aviation. There is a big difference in specific tax.
Smuggling is most rampant in Subic. For imports into Subic, they ship it out as if it is re-exported so that no duties and taxes are paid. By ship, it is either declared as export to another country or as bunkering to an international vessel. By land, it is declared as intended for a locator in a special economic zone which is treated as export. Subic supposedly accounts for about 30 to 40 percent of smuggled products. Other suspected smuggling points include a Bataan import facility and a depot in Bicol.
In fairness to DOF, they have recently started to implement some of the recommendations of the Petroleum Institute of the Philippines to control oil smuggling. For instance they are now putting marker dyes for kerosene imports (therefore cannot be used as Jet fuel), marker dyes for diesel re-exported out of Subic (prima facie evidence if detected in locally sold diesel). They have also started to reconcile PEZA fuels receipts versus issuances from Subic as smugglers are using fake delivery orders to genuine locators.
The Petroleum Institute also expressed support for recommendations of the Presidential Anti Smuggling Group (PASG) now awaiting approval by Ate Glue to include pre shipment inspection to determine quantity, price and quality. I guess the next move is Malacañang’s.
Oil smuggling is not as visible as the smuggling of flashy luxury cars. But the revenue leakage is far greater. If Gary Teves means business, he would spend more time and energy working on this one.
posted by OlongapoCity Zambales at
6:03 AM
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