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Republic of the PhTippiges

DEPAR'T'MENT OF FINANCE Roxas Boulevard Coma Pablo Ocampo, Sr. Street' Manila 1004

DEPARTMENT ORDER NO. February 15, 2008

6-09F

AMENDING DEPARTMENT ORDER NO. 23-07 DATED JULY 26, 2007, ENTITLED "MANDATING THE MARKING OF IMPORTED KEROSENE AND FUEL OILS WHICH ARE ENTERED TAX AND DUTY FREE TO PREVENT THE UNAUTHORIZED DIVERSION THEREOF INTO THE DOMESTIC MARKET AND FOR OTHER PURPOSES". Pursuant to Section 7 (4), Chapter 6, Book IV, Title III of Executive Order No. 292, otherwise known as the "Administrative Code of 1987"', in relation to Section 100 and Section 602 (b) and other pertinent provisions of the Tariff and Customs Code of the Philippines (TCCP), as amended, and the pertinent provisions of the National Internal Revenue Code of 1987, as amended, the following order is hereby issued. SECTION 1. Department Order No. 23-07 dated July 26, 2007 is hereby renamed as follows: "Mandating the Marking of Imported Kerosene and Diesel Which are Entered Tax and Duty Free to Prevent the Unauthorized Diversion Thereof Into the Domestic Market'. SECTION 2. Section 1 is hereby amended to read as follows: "SECTION 1. Rationale. - Substantial revenues are provided by the taxes and duties collected from the importation of petroleum products, including kerosene and diesel, There are reliable reports that said tax-and duty-free articles have been subsequently entered into the domestic market illegally without the payment of the proper duties and/or taxes due thereon, resulting in large revenue losses to the government and to legitimate oil companies. Consistent with the declared policy of the State to intensify its smuggling efforts, there is a need to adopt measures to ensure the due payment and/or proper collection of duties and taxes on kerosene and diesel which were initially entered into the Philippines on an exempt basis and to prevent the unlawful entry and diversion thereof into the domestic market. Other countries have successfully employed existing fuel marking technologies to curtail fuel smuggling activities, by utilizing fuel markers based on, among others, covert molecular recognition technology. " SECTION 3. Section 2 is hereby amended to read as follows:

I

"SECTION 2. Scope. - This Order shall cover the implementation of the program of marking of imported kerosene as well as of diesel whether imported or manufactured/refined in the Philippines which under Philippine laws are exempt from the payment of duties and taxes, whether the same was by reason of importation or manufacturing in a free zone, as proof that these petroleum products were legitimately entered into the Philippine territories and/or refined in the Philippines and are, by law, exempt or not required to pay duties and taxes." SECTION 4. Section 3 is hereby amended to read as follows:

"SECTION 3. Objectives. - The mandatory fuel marking program covered by this Order shall have the following objectives: (a) to properly identify and track kerosene and diesel entered into the Philippines without the payment of duties and taxes, whether the same are legitimately entered free and/or exempt from duties and taxes, or illegally entered into the Philippines; (b) to plug the leakage of the duties and taxes due on kerosene and diesel initially entered into the country without the payment of duties and taxes and which are eventually diverted to the domestic market or for other use which will subject the kerosene and diesel to duties and taxes. (c) to provide the necessary tool and evidence for the prosecution of parties who do not pay the proper duties and taxes for kerosene and diesel introduced into the domestic market. " SECTION 5. Section 4 is hereby amended to read as follows: "SECTION 4. Mandatory Marking of Kerosene and Fuel Oil Exempted/Free from Duties and Taxes - The following shall be marked with the official marking agent designated by the Department of Finance (DOF) in accordance with existing rules. a. all kerosene, including dual purpose kerosene (DPK), subject to zero excise tax; and

b. all diesel oil entered duty and/or tax free. " SECTION 6. Section 5 is hereby amended to read as follows: "SECTION 5. Responsibility to Mark - In the case of kerosene subject to zero excise tax referred to Section 4 above, the person, entity or taxpayer who owns or enters the product or to

\.J whom it is consigned, or whoever brings the same into the country, shall cause the marking of said duty and/or tax free kerosene/diesel with the official marking agent, and shall bear the cost of marking the same. In the case of diesel likewise referred to in Section 4 hereof, the person, entity or taxpayer who imports, manufactures and/or refines said diesel shall cause the marking thereof with the official marking agent, and shall bear the cost of marking the same. The failure or refusal of the person, entity or taxpayer responsible for the marking of the kerosene/diesel as herein required within a period of fifteen (15) days from due notice shall subject such owner, consignee or importer and the articles to such sanctions as may be imposed in accordance with the Tariff and Customs Code of the Philippines, as amended, and other relevant existing laws and rules and regulations issued in pursuance of law." SECTION 7. Section 9 is hereby amended to read as follows: "SECTION 9. Responsibility of the PIO - The PIO, which is hereby authorized to call on any official of the DOF and its attached agencies for such assistance as may be necessary, as well as to require the participation of experts to help achieve the objectives of the Order, shall have the following duties and responsibilities: (a) To commence the pilot implementation at the Subic Bay Free Port, the Clark Special Economic Zone and the Port of Batangas on or before March 15, 2008. (b) To ensure that all operational and technical written instructions are in place and properly disseminated to all concerned; (c) To issue the Terms of Reference and Engagement of the pilot test marking provider; (d) To identify and resolve operational and technical difficulties identified in the course of pilot implementation; (e) Complete the pilot test within three (3) months from commencement and submit recommendation on the nationwide roll-out within pilot test period; (f) Submit monthly progress report to the Secretary of Finance on the pilot implementation. SECTION 8. All orders, issuances, rules and regulations or parts thereof inconsistent with this Department Order are hereby repealed or modified accordingly.

SECTION 9. This Department Order shall take effect immediately..

MARGARyrO BJTEVES

. Secreta

0051:.6

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