Customs Duty Bill, Customs and Excise Amendment Bill & Customs Control Bill: National Treasury briefing & adoption

Meeting report

Briefing by National Treasury
Mr Kosie Louw, Chief Director: Legal and Policy, National Treasury, said the Bills were written in plain language and were much easier to navigate than the previous Bills, and provided valuation provisions to combat valuation fraud. The Bills were fully compliant with the General Annex of the Revised Kyoto Convention, which was the blueprint for a modern customs framework, although they were not party to the specific annexes, which were guidelines.  It complied with the SAFE Framework of Standards to
Secure and Facilitate Global Trade, and with the General Agreement on Tariffs and Trade (GATT). The drafting of the Bills included an evaluation of the laws of Australia, Canada, New Zealand, India, the European Union and the UK.

There had been wide consultation with the SA Customs Union (SACU) and the organs of State since September 2003. Cabinet had approved the Bills in August 2013.  Treasury had consulted with public bodies during the parliamentary process. The Bills aimed to improve the transparency and predictability of doing business, and to promote exports.

Customs Duty Bill [B43-2013]
This Bill dealt with the imposition, assessment and payment of duties. It emphasized self-assessment and SARS’s role of verifying the traders’ self assessment.  Among the key changes was the introduction of the General Anti Avoidance Rule, which was in line with the tax environment.  In Chapter Ten, on advance rulings, it provided for the issuing of binding rulings in advance and on application of tariff classification, the valuation of goods and the origin of goods.  It provided for administrative penalties that were fixed, as well as for prosecution avoidance penalties.

Customs Control Bill [B45B-2013]
The Bill would serve as a platform for the implementation of the Customs Duty Bill and other bills, like the VAT and Excise Bills, dealing with the import and export of goods and focused on the control of goods. Chapter Two of the Bill dealt with customs control areas, with places of entry and exit -- not only of goods, but of people as well. Chapter Three dealt with the shift from paper to electronic reporting to facilitate customs clearance, to enable advance risk assessment and to allow for planning.  Chapter Four dealt with the release of goods for home use. Chapter Nine dealt with inland terminals. Chapter 16 dealt with exports which would be more tightly regulated, to reduce the loss of customs duties and VAT. Chapter 28 dealt with the registration of importers and exporters.  Foreigners must appoint a representative in South Africa so that they could be held responsible locally. Registration automatically expired after a period of three years of no activity. Chapter 38 dealt with relief for the voluntary disclosure of offences.

Customs and Excise Amendment Bill [B44B-2013]
The Bill provided for the consequential amendments as a result of the Customs Control and Duty Bills, and renamed the 1964 Act to the Excise Duty Act.

The main issues raised during the public hearings were that of inland terminals, penalties and the rules.
Under current legislation, containers could move inland purely on the basis of the ship’s manifest, but SARS wanted a customs clearance declaration to be given so as to have better information in order to make a more informed decision in the exercising of its control duties. There had been much debate with Business Unity SA (BUSA) and the Johannesburg Chamber of Industries (JCI), who were not in agreement with SARS, while the SA Association of Freight Forwarders (SAAFF), Transnet and the SA Association of Shipping Operators and Agents (SAASOA) was satisfied that it would work. A fall-back clause had been inserted to accommodate the fears of the JCI and BUSA, and there would be a 12-month grace period to introduce the legislation. SARS had no intention of closing the inland terminal -- it only wanted better information to make a risk assessment.

SAAFF had been concerned about the administrative penalties for bona fide errors, and the discretion of customs officers. SARS had proposed that no fixed amount penalties would be imposed for bona fide errors, and the value of the penalties in clause 876 would be reduced by 50%.  Officers would not have any discretion in the amount of the penalty.

The SA Institute of Chartered Accountants (SAICA) had been concerned that the rules had not been available for scrutiny and comment. SARS said it was normal for the primary legislation to be passed and the rules to follow after that, and it was not possible to include all technical aspects in the primary legislation.  The rules would be published for comment before being implemented, and SARS would be conducting workshops to explain them.

Discussion
Mr B Mashile (ANC; Mpumalanga) said there appeared to be confusion about the role of parliamentarians. He was concerned that rules were being dragged into legislation, whereas legislation should be a reflection of policies. He was worried about safety and security being relaxed with regard to the ease of access into the country. On benchmarking, he asked why countries like Australia, Canada and the UK were being referenced, when South Africa had associated itself with the BRICS countries. Why were BRICS countries not referenced?  He questioned whether exports were being promoted, when exports were possible with incomplete export declarations and without a container number being referenced, as it sounded more like anarchy was being promoted.  Regarding the collection of customs duties, he said SARS wanted its business to run itself. When would SARS officials do the necessary spot tests?  Did SARS plan to educate business to do tax evaluations?  Would SARS refunds cover extraordinary losses of small enterprises if they were wrongly penalised? What penalties would SARS pay?  What was the intention when someone was penalised -- was it to intimidate them? Was the one-stop shop at border posts included and aligned in this legislation?

Mr R Lees (DA; KwaZulu-Natal) asked whether a penalty was imposed if a claim was put in and a document was not submitted. He wanted a further explanation of the prosecution avoidance penalty. What process was followed for offences and the penalties that were applied? Could people justify themselves, or was there an arbitrary application of a penalty by an official?  He wanted further explanation of the single duty-free warehouse.  Were there no licensing provisions in the current legislation, and did everyone have to apply? Why did SARS differentiate on the size of the business when giving SMMEs allowances -- surely it should be promoting economic activity, rather than promoting SMMEs? Were the revised proposals part of the Bill, or not?

Mr J Joseph (DA; Western Cape) asked if payments could also be made on-line. Regarding fixed penalties and the reduction of the fines by 50%, he asked how that would impact on SARS’s income and whether the penalties were in line with the contraventions. He asked if the clause regarding the inactivity of a client after three years was a new clause. He recognised the transhipment from port to inland terminals, but what about goods moving from a port to an airport?

Mr S Montsitsi (ANC, Gauteng) said there were no interventions at the entry points like Johannesburg International airport -- all one saw were airport exit signs. He said that if one reduced or standardised penalties, irrespective of nature of the offence, there would be deliberate avoidance and falsification of information to avoid customs taxes. He did not see SARS taking strong, punitive measures on counterfeit goods.

Mr Lees asked if BUSA were comfortable regarding the revised proposals on the issue of City Deep.

Mr Louw replied that SARS was trying to find a balance between policies and rules in legislation.  SARS had been criticised in the past because there were too many rules in the legislation. SARS had followed the advice of its lawyers.  This was to put as much of the procedures in the main legislation to be passed by Parliament, so that there was certainty and predictability for traders. The rules were also tabled in Parliament, although they were not necessarily discussed in Parliament.

On the issue of border access and safety and security, he said that SARS might have come across as being too biased in favour of facilitating trade. It was important to try to find the balance between facilitation and control. SARS was obligated to protect society, in conjunction with other agencies, by ensuring that prohibited goods did not enter the country, and to protect the economy from the dumping of goods. This was all stated in the Preamble.

Regarding exports with incomplete documentation, he said that this does not apply to crucial information. A supplementary declaration containing the missing information had to be filed before the goods could leave the country.

Regarding self administration of duties, he said this was how the modern world operated. Self administration was done for income tax and VAT also. SARS did spot checks and audits as it was impossible to check all because the volume was too large. Risk assessment was done via random audits. Risk engines were used where to identify who to audit based on information trends, information from third parties, import and export patterns and post audit clearance inspections. It was done to protect the economy. High risk containers were inspected at the border while medium risk containers at the premises or at inland terminals.

Regarding the education of its clients, he said people could approach SARS and SARS would give a ruling.
It issued interpretation notes and did workshops countrywide to small business on new legislation.

Import/export administration work was done by licensed agents, who had to undergo training and get qualifications.

There was a structured regime regarding fixed penalties. For smaller, mundane offences -- from R0 to R2500 -- the details were given in the rules. The penalties had been fixed, as in the past they had been discretionary penalties ranging from 0% to 200%. It was now more prescriptive and therefore more consistent, and was not at the discretion of a SARS official any more. The fixed penalties were not intended for the more serious offences.

The one-stop shop at border posts was not in this legislation.  It was in the old legislation, and was done via agreements. South Africa was implementing an agreement it had with Mozambique.

He said prosecution avoidance penalties were for offences which would normally be processed through the courts, but for some reason could not go through the criminal justice system.   Therefore, an administrative penalty had to be paid.  However, SARS retained the discretion on whether a case went via the criminal justice system.

Mr Louw said a country should have rules against counterfeit goods. The main way to combat them was the Counterfeit Goods Act, initiated by the Department of Trade and Industry (dti). SARS was only assisting in its application and detection to protect the economy.

Regarding dutiable goods being stored in the same warehouse as other goods, he said the goods were duty free until they were used. Duties as a revenue source had a lesser role, as only R40bn out of a total of R900bn came from duties.

He said the revised proposals were in the A Bill, not in the main Bills.

Duties were not paid in advance. Although liability arose earlier, payment was only due when the goods were used.

There were categories within the range of fixed penalties.

He said there had been a printing mistake, and the clause relating to the inactivity of a client should have been in red ink, as it was new legislation.

Goods were mainly containerised, and the ship’s manifest gave very little information about the goods, so there was therefore a need for the clearance document to have better information. This did not apply to airports -- it was for shipping.

Regarding second hand clothes, he said the rules of the dti were there to protect the local garment industry. Even if the goods were for a good cause, they had to be controlled.

At airports, there was behind the scenes work. Customs would know the travel patterns of people, and risk engines would highlight people whose bags would be earmarked for investigation.

BUSA and the JCI were not comfortable with the position of City Deep, although the JCI was satisfied with the inclusion of the fall back clause. SAAFF, the shipping lines and Transnet  were happy with the situation.

Mr Lees asked SARS to explain the perceived risk in allowing goods to move to inland ports.

Mr Louw said it may allow prohibited or restricted goods to be moved inland, which should not happen. Audits at City Deep showed a 20% higher discrepancy rate than the average of 14% in the rest of the country.  One was not aware of all the transgressions that were taking place en route by road to City Deep. One did not know what had been taken from containers en route, thus the need for better information at the first port of entry. The ships’ manifests did not give enough information for a proper risk assessment. There was a lesser chance of fiddling if goods were moved by train. The trade unions had made an impressive presentation during the public hearings. It had done an analysis of goods from China. They had found under declaration for clothes imports amounting to R7bn, and the misclassification of clothes as toys, which were zero rated for duties. This had an impact on the economy of the country. Foreign seeds could also be brought inland.

Mr Lees replied that the reasons were not valid enough. Bringing in seeds was not a valid enough reason. Diverting goods en route could be a reason, but he did not believe it to be a big problem, and counterfeit goods would be counterfeit in Durban as well as Johannesburg.

Adoption of Customs Bill

The Committee adopted the Customs and Duties Bill [B43-2013]. Mr Lees said he supported the Bill.

The Committee then moved to adopt the Customs Control Bill [B45B-2013].

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said that the A Bill had been incorporated into the B Bill.

The Committee then moved to adopt the Customs and Excise Bill [B44B-2013].

Mr Lees moved for an amendment, that the sections of the old Bill on inland ports be retained.

The Bill was adopted by the Committee and the Chairperson said that the DA amendments be written out for inclusion in the Committee report.

Mr Lees asked that the DA's objections be noted in the minutes.

The meeting was adjourned