Government News Analysis

Smugglers’ crushing defeat

Smuggled luxury cars Philippines

Tuesday was Demolition Day in Manila. Philippine president, Rodrigo Duterte, had decided it was time to send a very simple unambiguous message to smugglers and anyone seeking to evade paying import tax on luxury cars – scrap the racket or see those luxury cars end up as scrap. And to make the point, around 20 of them – all second-hand; Lexus, Jaguar, Porsche among them – were lined up and unceremoniously crushed under the tracks of a bulldozer at the Bureau of Customs (BOC) Port Area.

Meanwhile, a further 10 vehicles suffered the same fate at the port customs areas in Cebu and Davao. In other words the same message was telegraphed across the country’s three main island regions of Luzon, the Visayas and Mindanao.

Had they not been seized, these vehicles would have been discretely stored and then gone into a private auction in around 18 months time; allowing the illegal importers to purchase them in a sale that would appear above board. Having been in the country for that period of time, they’d be like any other cars put up for sale. All that’s academic though; Duterte cancelled the auction and put them under the hammer anyway.

In the past, smuggled vehicles in the Philippines have been sold off with the proceeds going towards government revenues. Last year, the BOC seized PHP150.47 million worth of smuggled vehicles. The new policy, however, puts an end to that; from now on they’ll be crushed.

The fact is, importing cars into the Philippines is a difficult and costly business – but that’s by design. The government really doesn’t want people bringing in second-hand cars. Its priority is to assist the country’s auto-retailing sector to grow; it wants Filipino car buyers to buy locally.

Consequently, it slaps some fairly steep taxes on individuals importing used cars – 40% customs duty; 12% value added tax; and anywhere between 15% and 100% ad valorem tax. While the first two are standard rates, the ad valorem tax is calculated, basically, on engine size – the bigger the engine, the higher the tax. Thus, the ad valorem tax on the luxury cars which went under the bulldozer on Tuesday would be charged at the upper end of this scale.

So; all that is what the smugglers were hoping to avoid paying. As it turns out, however, the loss of their cars cost them a great deal more than what they were hoping to save in duties. Last week, Duterte said this: “You want imported cars? Pay import duties first”. On the same page, Finance Minister Carlos Domingue said this: “It does not pay to evade taxes in the Philippines; so might as well stop trying, because you will never succeed”.

The market value of the cars destroyed in Manila is estimated to have been around PHP62 million, before the bulldozer driver got to work. That bill will be borne by the smugglers and their financial backers. Meanwhile, the cost to the country will be a few pesos for the bulldozer’s diesel.

And that’s a very good deal if the message is heeded. It strikes a blow for law and order; it shows that the president is holding fast to his commitment to stamp out criminality; it prevents further tax losses – and it puts a little pride back into the BOC.

Smuggling has been a persistent problem in the Philippines for many decades. Over that time, for more than a few working at the BOC – arguably the most corrupt of any government department – it’s been a way of life. In 2015, the government estimated that smuggling through the country’s 17 ports that year had chalked up revenue losses of PHP200 billion. That’s PHP547 million a day. In more graphic terms, it’s roughly the equivalent of a daily crushing of 177 luxury cars.

Duterte’s executive action, then, is aimed at hitting the smugglers where it hurts most – in their wallets. But last Tuesday’s car-wrecking events shouldn’t be seen in isolation; this is all part and parcel of his ongoing war on criminality. Defeating crime – at all levels – was among Duterte’s key election promises. Alluding specifically to smugglers and corrupt officials, as President Elect, in June 2016, he said this: “The corruption must stop. It makes me sick. I have zero tolerance [for] graft and criminality”.

And, again on Tuesday, once the bulldozer had done its work, as the president attended the BOC’s 116th anniversary of its founding, he said: “This racket has been going on again and again over centuries. Well; it has to stop”.

But if it was a bad day for the smugglers and those whose cars ended up as twisted metal, it was a good day for the BOC – and particularly for its commissioner, Isidro Lapeña who took over as chief at the end of August last year after its former chief, Nicanor Faeldon, became hopelessly embroiled in a PHP6.4 billion drugs-smuggling scandal involving Manila International Container Port.

One of the tasks Lapeña’s been set is to improve the bureau’s revenue collection – money which the government sorely needs for its priority development programmes. And the good news is that he’s being doing that. Last September, the BOC collected revenues of PHP40 billion; in October, PHP42.9 billion; in November, PHP46.36 billion, and in December, PHP44.45 billion.

“These collections are an all-time high in the history of the Bureau of Customs,” Lapeña told Tuesday’s gathering. In fact, by the end of last year, it had collected revenues totaling PHP457.638 billion – just 2.2% below its target of PHP467.896.

Meanwhile, the president’s Demolition Day has caused a great deal of interest on social media with emotions ranging from joy to shock. But, in fact, there’s nothing unique in government’s destroying contraband goods, which is what these cars were.

In August 2015, Russian TV showed government workers dumping truckloads of gourmet cheeses – 9 tons of them – into a landfill where they were then steamrollered. That was just a small part of 300 tons of various smuggled foodstuffs that were destroyed on the first day of a Russian Government import ban. Responding to critics, Russian Agriculture Minister Alexander Tkachev said this: “It is a worldwide practice that if you break the law, if it is smuggled goods, they have to be destroyed”.

Last September, the Malta Customs Department destroyed 11,667,748 cigarettes and 77 kilos of tobacco – all illegally imported – at its recycling plant on the Mediterranean island. And the following month, Customs and Excise officials in Namibia in southern Africa started up their bulldozer and crushed 95,000 bottles of counterfeit whisky and vodka – a haul worth the equivalent of PHP86 million, which had allegedly been smuggled in from the United States.

Of course, no car lover wants to see an iconic Chevrolet Corvette Stingray or a highly collectable S-Type Jaguar, once the fastest road-production saloon car in the world, crumpled out of recognition under the metal tracks of a dirty, exhaust-belching earthmover. But this isn’t really about those cars, it’s about billions of pesos of stolen government earnings that could – and should – be used for improving Filipino lives. Money, for example, that could be used to build much-needed farm-to-market roads in the cash-blighted countryside; or lay some rail track in a country that’s crying out for it.

And anyway, selling off these smuggled vehicles is not an option, Not simply because they could still end up in the wrong hands; but because if they were put up for auction, the country would then be profiting from the same crime. And we’re fairly sure that’s not the message Duterte wants to send to a country – certainly parts of it – which he wants to teach to observe the laws of the land.

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