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Wednesday, May 24, 2006
Exporters can ill afford import duties on raw materials
SMALL exporters simply cannot afford to pay cash on import taxes on raw materials they bring in from overseas that are tax-free in the first place.
This was the curt statement issued by Philippine Exporters Confederation (Philexport) Inc. president Sergio R. Ortiz-Luis, Jr. on an item in the anti-smuggling bill being debated at the Senate.
That part of the pending law requires cash payment of taxes on all raw material imports by exporters upon arrival. Only later can they get duty drawback after those raw materials are exported in finished form.
Even the big exporters are scared of that provision of the proposed law because of the extreme difficulty of getting back the advanced taxes, he added.
For decades now, exporters have enjoyed the tax-free importation of their raw materials through common customs bonded warehouse facilities supervised by five different offices of the Bureau of Customs (BOC) and overseen by five different government agencies.
Ortiz-Luis said tax-free raw material importation has only been the only practical incentive enjoyed by the export sector since all other incentives granted under the Export Development Act of 1994 have yet to be implemented. It is also a common practice worldwide.
He also said that as they are already scrimping for working capital due to the difficulty of accessing credit, small exporters could not survive spending additional money on import taxes for items that are tax-free. If adopted, that part of the anti-smuggling bill may trigger off widespread social dislocation if the small and medium enterprises (SMEs) are forced to close shop.
Ninety-nine out of every 100 Philexport members are SMEs but they account for 75 percent of the country's export revenues.
The Department of Finance (DOF) will have to deploy more people to accept advanced tax payments and later in returning the money to exporters. The agency can use the services of those employees in revenue-generating work instead of enhancing the revenue-generating efforts of government.
"The new layer of red tape in processing the pre-payment and refunds will be another albatross on the necks of exporters. So why bother doing it", Ortiz-Luis asked.
Ortiz-Luis likened the initiative to slap taxes on raw material imports to burning the forest so as to flush out a few varmints.
The problem, he added, arose when the previously strict screening of bonded warehouse operators was relaxed and some of the newer operators used bonded warehouses as channels for technical smuggling.
Instead of killing the patient, Customs officials need only to re-enforce tight screening based on track record, ban the lawbreakers, and continue tracking down raw material imports to prevent them from getting sold domestically.
Besides, the scheme will run counter to an ongoing program of the Bureau of Customs (BOC) of expanding the paperless processing of import and export documents through automation, which has been successfully pioneered by the country's electronics and semiconductor industry, the biggest importer of raw materials. (Abe P. Belena/Philexport News and Features/Sunnex)
(May 24, 2006 issue)
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