The Market Monitor Minding the Nation's Business
By Luis Leoncio
“Immediately upon being advised of my appointment as commissioner of the Bureau of Customs, I met with the directors and officers of all my companies and announced my resignation from the chairmanship and vacated my seat as director of all the companies comprising the Lina Group,” Customs Commissioner Alberto Lina said in a statement to The Market Monitor in light of allegations hurled against him by Deputy Speaker Sergio Apostol.
But Lina was mum on the other charge that he allowed his cargo firm to be used to “smuggle” tobacco materials for Philip Morris Fortune Tobacco Corp. Inc. (PMFTC) from January 2010 to December 2012.
Through a spokesman, Lina also announced his intention to sell all his and his family’s shares in all the logistics companies under the group.
“Documents are being prepared for the sale of subject shares and the payment of the appropriate taxes thereon,” he said.
Lina also disputed allegations of non-payment of taxes on his companies, such as Air21 and U-Freight Philippines Inc.
U-Freight was under investigation by the Bureau of Customs (BOC) for its alleged failure to pay about P1.5 billion in taxes and duties for an undisclosed number of shipments at its Pasay City warehouse.
But Lina said U-freight was not a party to the transaction. Zest Air (now Air Asia Zest) was the importer of record, he said.
“In a letter dated 19 November 2014, it is, through its new broker, in the process of liquidating the bonds covering its shipments. The broker’s letter to the BOC, dated May 24, 2014, stated that the shipments were transferred to importer’s premises with the imprimatur of customs officials,” he said.
Letters of request
Lina also said records show that in some instances, Zest Air submitted letters of request to the deputy collector for operations of the Ninoy Aquino International Airport (Naia) to release its shipments under guard and the requests were approved.
He also said the congressional franchise of the airline states that it enjoys tax and duty-free importation under Sec. 105 (u) of the TCCP and 109 (s) of the National Internal Revenue Code (Nirc).
The Department of Finance (DOF) regularly issues certificates of exemption to the shipments of Zest Air, including most of the importations covered in this issue. Zest Air, through its brokers (past and present) are still in the process of having the DOF exemption certificates issued for the remaining shipments covered in this issue, Lina said.
On the contract of Air21 with the Commission on Elections, Lina said the project was won in a public bidding participated in by around seven bidders, all leaders in its own right in the logistics and freight forwarding industry.
Lina did not comment on Apostol’s allegations that PMFTC used Lina’s Air Freight 21,000, or Air21, to import tobacco and other materials used for the manufacture of cigarettes from January 2010 to December 2012 that were allegedly illegal and tantamount to smuggling.
Apostol also wondered how Air21 became an importer of tobacco, since it is a mere courier company. As a courier company, Apostol said, Air21 is solely established to deliver messages, packages, parcels and mail. It has no corporate capacity whatsoever to act an importer; doing so would gravely violate its articles of incorporation, specifically the main purpose on why is it incorporated.
“Air21 has, therefore, no personality to import subject tobacco products on the following grounds: it is not incorporated as an importer, but a mere courier company; it is not registered as a Customs Bonded Warehouse to import/handle/process tobacco as raw materials; it is not registered as a trading bonded warehouse to sell imported raw materials to manufacturer of cigarette; it is not incorporated/registered as a cigarette manufacturer or for whatever business related to tobacco,” Apostol said.
“The subject tobacco importations of Air21, falling under the four instances cited are, therefore, illegal, constitutive of smuggling and should have been seized and forfeited outright. It is well-noted that tobacco products, being articles of regulated importations, should have been imported only by those being established/authorized by law,” he added.
Apostol, who was Malacañang legal counsel under former President Gloria Macapagal Arroyo, said Air21 is an affiliate of the brokerage firm that handles the account of PMFTC, which is 21000 Customs Brokers Inc. (21000 CBI) under a broker named Teresita M. Malic, one of the top executives of Lina’s Air21
‘Clear case of fraud’
Meanwhile, PMFTC also refuted Apostol’s allegations as it cited the recent findings of the Senate Tax Study and Research Office (STSRO) that it was its local competitor, Mighty Corp., and its business practices that may have adversely impacted on government revenues.
“The report was presented and discussed in Congress. We concur with the observations made by a member of the joint committee that the only conclusion that can be drawn is that this is a clear case of fraud. The findings may just be the tip of the iceberg,” PMFTC President Paul Riley said.
“A great deal of what we have suspected for a long time now is finally out in the open. The STSRO uncovered several pieces of evidence that shed light on Mighty’s ability to sell all their products below tax and cost for almost 18 months now, while still enabling them to stay afloat,” Riley said.
“This remarkable, and I would contend explosive report, offers what was highlighted by a member of Congress as evidence of systematic and endemic fraud. The evidence may potentially expose Mighty to very serious liabilities as a consequence of the various practices discovered by the STSRO,” he said.
The STSRO report indicated that Mighty may have been involved in fraudulent activities. The STSRO report revealed Mighty’s following practices:
Using imported materials to make cigarettes for export but diverting them to the domestic market without paying duties and taxes; and Undervaluing the cost of tobacco and filter imports to evade customs duties and import VAT.
In the STSRO report, it was noted that 99 percent of Mighty’ s importation of tobacco leaf and cigarette filter materials were declared for use in the manufacture of cigarettes for export only and virtually none for domestic use. Yet the Company itself admitted to exporting only 1.5 percent of its total production.
The report also highlights the massive underpricing of Mighty’s imports of filter material with at least two US-based suppliers confirming that they sold to Mighty at a much higher price than what was declared with the Bureau of Customs.
For filter materials, Mighty declared import prices between $0.36 and $0.40 per kilo. The US suppliers certified to the Department of Trade and Industry that they sold the filter materials from $5.35 to $6.70 per kilo.
For tobacco leaf, Mighty imported Virginia tobacco from $0.68-$0.77 per kilo while the other importers declared between $4 and $6 per kilo. Mighty imported Burley tobacco at $0.68 per kilo while the others paid $3.50 to $7 per kilo.
While the government padlocked Mighty’s warehouse and assessed them with additional taxes for its 2013 imports, the report presents new convincing evidence that highlight what was pointed out by a member of Congress as systematic and endemic fraud.
Further, as uncovered by the STSRO, the questionable business practices employed have been occurring as early as 2005. This deserves more careful scrutiny as it could likely merit wider and stricter enforcement action by the government.
“In light of the findings of the STSRO, we believe that the relevant government agencies will not hesitate to enforce the full weight of the law to achieve the government’s goal for everyone to pay the right taxes,” Riley said.