Bureau of Customs bills Shell P7.3 million in taxes

MANILA, Philippines – The Bureau of Customs (BOC) has ordered Pilipinas Shell Petroleum Corp. to pay within 10 days about P7.34 million in excise taxes and value-added tax (VAT) for importations of unleaded gasoline from 2004 up to October 2009.

Customs Commissioner Napoleon Morales reminded the company over the weekend to pay a total of P7,348,767.933 within 10 days from receipt of the demand letter, which was sent on Nov. 11, 2009.

Sources from the BOC revealed that Morales also ordered Shell to pay excise tax and VAT on all of its incoming shipments of unleaded gasoline.

The BOC order came following an investigation conducted by the bureau, headed by Morales, Deputy Customs Commissioner Reynaldo Nicolas, and District Collector Juan Tan of the Port of Batangas.

The Office of Presidential Adviser for Revenue Enhancement (OPARE) under Narciso Santiago Jr. was also involved in the review of Pilipinas Shell’s back taxes.

The order came amid the standoff between oil companies and the Palace over the issuance of Executive Order 839, which directed an oil price freeze at Oct. 15 levels due to the state of calamity.

President Arroyo has directed the lifting the EO starting today.

BOC officials said Shell had only paid excise taxes on the importation of unleaded gasoline for the years 2001, 2002, and 2003. Shell stopped paying excise taxes on its unleaded gasoline imports in 2004.

The oil company argued that what it was importing was not unleaded gasoline, but Catalytic Cracked Gasoline (CCG).

Shell declared that CCG is not a finished product but a blending component used to produce its finished products for sale to the local market. The firm said that since CCG is a blending component and not a finished product, its importation is not subject to excise tax.

Shell’s position was upheld by a legal ruling from then Deputy Commissioner of the Bureau of Internal Revenue (BIR) Jose Mario Bunag.  

In his Memorandum dated March 24, 2004, Bunag stated that imported CCG, “being intermediate goods not intended for domestic sale or consumption but [is] going to be used as additional components in the production of gasoline (which is the finished product),” is not subject to excise tax under the National Internal Revenue Code (NIRC).

Bunag’s opinion was affirmed by then Commissioner Sixto Esquivias IV in a June 9, 2009 Memorandum to Finance Secretary Margarito Teves.

The BOC, however, ruled that Shell is liable for payment of excise tax for the importations of CCG. The bureau insisted that excise taxes apply to things imported.

BOC said Shell was paying the corresponding excise tax for unleaded gasoline on its previous importations of CCG, until the Memorandum of Bunag was issued. The bureau said Shell even admitted that CCG is the same as unleaded gasoline.

The BOC also ruled that under the law, excise tax is imposed on regular gasoline and unleaded gasoline. The law does not qualify whether or not it will be used as raw material or blending component to produce a finished product, unlike in the case of naphtha where it is expressly provided that the excise tax is zero when naphtha is used as a raw material in the production of petrochemical products.

“Gasoline whenever imported shall be subject to excise tax and VAT based on the landed cost, whatever is the intention of the importer to the use thereof,” said the BOC.

Bureau officials said that all the other oil companies have been paying the excise tax for the importations of unleaded gas.