In President Aquino’s last Sona message, he said the government was losing P200 billion due to smuggling. The table below shows this was not always the case. In 2004, the government lost only P26.6 billion, which dropped to P19.4 billion in 2005. From 2006 onward, it rose steadily hitting P204.3 billion in 2012.
Who is accountable for the revenue loss due to smuggling? It is definitely the Bureau of Customs. However, in a less but important way, it should also be the Department of Finance, the Department of Agriculture and the Department of Trade and Industry.
Do the numbers in the table make sense? We used UN Trade Statistics in getting the top 25 countries that export to the Philippines, which account for 86-91 percent of Philippine imports. We took their reported exports to the Philippines and compared them to the BOC record of imports. The difference is underreporting. Most of this is due to undervaluation, misclassification or misdeclaration.
Our revenue loss estimates were derived in the following way. We took the dollar value of underreported exports and multiplied it by the 5 percent average tariff and the effective 11 percent Value-Added Tax (1 percentage point was deducted from the 12 percent VAT because VAT-exempted agricultural imports constitute 12 percent of total imports). We then translated the dollar value into pesos by multiplying this by P45. Are these reasonable estimates?
Our calculated 2012 number of P204.3 billion is close to President Aquino’s P200 billion Sona number. For 2011, we used the Global Financial Integrity (GFI) data, which goes back only to 2011. GFI economist Brian Le Blanc places this number at $3.9 billion. This is equivalent to P175.5 billion which is also close to our P169.3 billion estimate.
Gwynn Guilford states: “The bigger question for the Philippines is how its poor households are doing. If illegal in-flows mean the government can’t give them as much aid, the real economy will continue to suffer.”
Inclusive growth
Our economy is suffering because we are seeing jobless growth and increasing unemployment. Smuggling has much to do with this.
According to the DA’s Bureau of Agricultural Statistics, 20 percent of our backyard hog raisers lost their livelihood over a two-year span, mostly because of smuggling. Companies in both the agriculture and industry sectors have closed down due to smuggled cheap, and sometimes unsafe, imports. More potential investors would come if they are assured that massive smuggling will not kill their businesses.
Smuggling has a double hit on inclusive growth. First, it kills existing jobs. Second, it discourages investments which are necessary for more jobs. Jobs are the key to inclusive growth. And if we recover the revenue lost from smuggling, we can use this to create a more job-friendly economic environment.
Recently, we have seen significant reforms under the BOC’s new management guided by Finance Secretary Cesar Purisima. We saw similar reforms in 2005, when smuggling decreased by 27 percent (and the underreporting rate decreased to 6 percent). During that time, there was a joint public-private sector anti-smuggling oversight body. But when this body was abolished, the smuggling increased systematically until it reached 10.6 times in 2012 (and the underreporting rate increased to 33 percent).
In 2005, the only year when smuggling decreased, three other departments were made accountable in the anti-smuggling drive: DOF, DA and DTI. This is because they were part of the antismuggling oversight body. It was their job to help fight smuggling. But when this body was abolished in 2006, their accountability decreased.
Restored accountability
This accountability should be restored: the DOF, because it supervises BOC; and the DA and the DTI, because they should not only create jobs but also protect existing jobs from unfair competition through smuggling. In fact, gains against smuggling should be part of these departments’ key performance indicators (KPIs) because of smuggling’s tremendous damage to our economy.
Today, there are many good officials at the BOC. But there are still unscrupulous elements that wish to undermine BOC’s important reforms. BOC needs the monitoring and guidance of an oversight body. This should include the private sector and at least the accountable departments of the DOF, DTI, and DA. This was the winning formula in 2005, and should be done immediately to keep the BOC reform momentum.
But to ensure that this body will not be abolished when it succeeds, as what happened in 2005, the creation of such a body should also be included in the proposed joint bill of the Customs and Tariff Modernization Act and the Anti-smuggling Law. Identifying the appropriate accountabilities and putting a structure to implement them is the key to eliminating the smuggling scourge we see today.
(The author is chair of Agriwatch and former secretary for Presidential Flagship Programs and Projects. For inquiries, e-mail agriwatch_phil@yahoo.com or telefax 8522112).