Higher US, Philippines De Minimis Thresholds to Benefit Filipino Businesses

Greater opportunities await local businesses in the Philippines as both the United States (US) and the Philippines have recently increased their respective de minimis thresholds on inbound shipments. De minimis refers to the minimum currency value of qualifying goods, below which no formal customs procedures are required and no duties or taxes are collected.

For the US, the low value exemption rate has been raised to US$800.00 (approximately Php37,755.00), a huge leap from the previous de minimis rate set by the United States Customs and Border Protection at US$200.00 (approximately Php9,440.00). For the Philippines, the Customs Modernization and Tariff Law has increased the de minimis rate from Php10.00 (US$0.21) to Php10,000.00 (US$212.00).

What does this mean for local businesses? “This is a key step in facilitating trade, particularly at a time when the Philippines is experiencing a growth in imports,” shares UPS Philippines Managing Director Tim Gohoc. “A low de minimis threshold restricts trade and economic growth, because it requires importers to shell out payments for duties and taxes even for low-value goods. We believe that the higher de minimis thresholds for the US and the Philippines will lead to freer, more efficient cross-border trade.”

Less cost, faster processing

A higher de minimis threshold reduces the expenses associated with filing paperwork and paying duties and taxes, while it increases the value of goods that can be imported. Because businesses no longer need to pay taxes or duties for items that cost less than de minimis, there will be less paperwork to file and submit, which will lead to faster release and delivery of goods.

“Filing paperwork, getting clearance from customs, and releasing goods takes time, money, and effort, not just from businesses, but also from government,” says Gohoc. “With the new de minimis threshold, we’re expecting that the process would be expedited and that moving low-value goods would be less of a burden.”

Adds Gohoc, “Imagine a manufacturer here in the Philippines looking to evaluate a prototype for a product or to test delivery times. Their timelines are getting pushed back. The time they could be spending refining prototypes or planning shipments is instead spent on paperwork and retrieving goods. This new threshold can facilitate these relationship-building transactions that could then lead to bigger shipments and more long-term engagements.”

New rates facilitates e-commerce

A higher de minimis threshold would also encourage small and medium enterprises (SMEs) to engage in e-commerce.

“When the old de minimis threshold was still in effect, one of the questions that we commonly got from our customers is ‘Why do we have to pay duties and taxes for low-value items?'” shares Gohoc. “It makes them less receptive to the concept of e-commerce, despite the fact that it offers a lot of convenience to shoppers.”

He adds, “With the new de minimis rates, it’s now easier for retail customers to shop online, particularly with US-based stories and make returns, if necessary. For businesses, the new threshold makes it easier for them to scope out suppliers or potential partners from other markets. Local businesses already catering to customers in the US can move towards increasing orders with those customers, while those that have yet to establish a base can work on doing so with the knowledge that their destination is also making trade easier for them.”

Recommendations for B2B, B2C businesses

The most recent Pulse of the Online Shopper US survey revealed that 77% of respondents using their smartphones to make their purchases. The survey also revealed that 58% of shoppers prefer stores that provide good photos, professional and peer reviews, and online access to store inventory, and that 60% of shoppers prefer to make their returns to a store.  In another survey which covered automotive parts shoppers in the US, more than six in 10 of customers would prefer to receive email or text delivery alerts with the approximate time of delivery.

How can Philippine businesses take advantage of the higher de minimis thresholds? Gohoc recommends that local businesses start building a support system to encourage and accommodate online orders in order to win over more customers, especially since both B2B and B2C businesses are now making online purchases in a more sophisticated manner.

“There many ways that integrated logistics providers like UPS can support e-commerce businesses. Businesses can  leverage UPS’s alternate delivery locations in the US to offer more options for their shoppers to pick-up and return their goods or they can give their shoppers a greater peace of mind through automatic notifications through our mobile application called UPS My Choice™,” said Gohoc.

Adds Gohoc, “Businesses should also start building a stronger online shopping experience. They should make themselves accessible in the channels where their customers are, invest in photography and writing to help customers with their decisions, and train their staff to accommodate customer requests. Customer service will no longer be confined to a fixed time, and these businesses need to be prepared to manage customer concerns regardless of where it comes from or when it comes in.”