Author: Kayn Woolmer (Deloitte)
The draft Customs Duty Bill and Customs Control Bill have been under development for almost six years now. As such it was expected that the Minister of Finance would make some mention as to when these bills would be promulgated into legislation thereby paving the way for enhanced customs controls and potentially improved customs management techniques and opportunities for both SARS and businesses in his Budget Speech earlier this year.
There has also been recent debate on whether a “sugar tax” would be introduced in South Africa as a form of sin tax in an attempt to reduce consumption and to hopefully offset health costs relating to diabetes and obesity, as well as the potential to collect additional revenues to assist to close the budget deficit. We have seen a trend in recent years of other administrations globally introducing these so-called “fat taxes”, but nothing materialised. There was also debate on a possible introduction of “export taxes” on certain raw materials and unprocessed metals, minerals and selected commodities. These export taxes are meant to promote the further beneficiation of these products in South Africa but are also used by Governments in certain developing countries to raise revenue. Given the recent responses in respect of the increase of the Repo rate as well as the implementation of e-tolls in Gauteng, we are not surprised that additional taxation was not mooted in an election year.
From a customs and excise perspective we are encouraged to see the continued focus on customs modernisation aspects for better efficiency and opportunities to improve compliance, reporting and visibility in the import and export spheres. For example, the introduction of high volume scanners at both the Cape Town and Durban will assist with the identification of non-compliance while having a minimal impact on delivery lead times and costs related to inspections of containers. SARS endeavours in its modernization project and implementation of an electronic clearance system not only provides for a more cost-effective clearance process, but reduces lead times and has an environmental impact as well.
A single SARS registration for all tax-types is mooted which further will potentially allow for an integrated view of the taxpayer from SARS’ point of view, but also will provide taxpayers with less administration.
SARS’ pilot project with the Mozambique Revenue Authority for a one-stop border post at the Lebombo border is expected to become operational shortly. The objectives of one-stop border posts are to reduce duplicated customs declarations on each side of the border and ultimately to accelerate passenger and goods traffic between Mozambique and South Africa.Minister Gordhan referred to the SARS’ increased focus on the clothing, tobacco and alcohol. Mention was made to the detention of 400 containers suspected to contain counterfeit clothing as well as assessing whether goods have been undervalued in the attempt to avoid paying customs duties thereon. It was also highlighted that the SARS seized R1billion worth of tobacco and cigarettes from companies found to be non-compliant with the Customs and Excise provisions. The alleged non-compliance was attributable to under-invoicing as well as the importation of illicit goods and has a significant impact on customs revenues collected and essentially the South African economy.
As an apparent consequence to the recent court cases relating to the definition of certain alcoholic beverages and the classification thereof in the Harmonized System Customs Nomenclature and consequently the effect of the classification on the customs and excise duty liability of such beverages, the currently available application for binding tariff rulings to be made on goods has been made compulsory in relation to alcoholic beverages. These rulings are compulsory in respect of all newly launched alcoholic beverages as well as to any existing products that are modified in any way. It appears that the objective is to ensure accurate and consistent classification thereof and to eliminate further litigation in respect of disputed duty liabilities. It is questionable whether SARS will be able to cope with the additional workload as tariff classifications skills are very rare and scarce. We recommend that companies start proactively looking at the tariff classification of all their products as this appears to be a focus area of SARS and we anticipate this mandatory ruling approach to be broadened to other product categories in due course.
Continuing on the trend of job creation, the Budget provided additional budget for the support provided through incentives including funding for Special Economic Zone (SEZ’s). In particular, support for local manufacturers and cross border trade was highlighted as a focus area thereby not only providing potential scope for growth and employment opportunities, but also to enhance the exportation of South African goods to earn foreign currency.
While automatic exchange of information at a global level was discussed, the Minister indicated that certain provisions in the current Customs Legislation will be enhanced to provide protection for traders and travellers on personal information provided by them. This is to align the customs legislation to the provisions as per the Protection of Personal Information Act.
Tax proposals relating to excise duties and other sin taxes are always expected with interest. As expected, excise duties on alcoholic beverages as well as tobacco products, cigarettes and cigars were increase and perhaps surprisingly for some given the recent dialogue with regards to the funding of e-tolls and like, fuel levies and road accident fund (RAF) levies were also increased. Minister Gordhan was especially careful to elaborate that the fuel levy and RAF increases were limited to inflationary increases.
There was also mention of the pending of the biofuels production incentive but still no confirmation of the exact levy other than that it will form part of the fuel levy.
The question that remains is what was not covered by the Budget speech. As mentioned above, no mention was made in respect of the revised Customs and Excise legislation and no changes were mooted in respect of ad valorem customs and excise duties. In an election year, we would anticipate that business initiatives allowing for opportunities for growth and ease of doing business would feature, however it appears that the budget approach was very conservative, at least from a customs and excise perspective. Further, no commentary was given in respect of the mooted declassification of City Deep as a port of entry, perhaps as it is a contentious issue at present and could potentially have public criticism from certain sectors.With the weakening of the Rand, the increase in lending rates and consumer and business spending being cautious, it is our view the traders have a challenging year ahead and can expect more scrutiny from the SARS from a customs and excise compliance perspective.