Customs Duty Bill [B43-2013]; Customs and Excise Amendment Bill [B44-2013]; Customs Control Bill [B45-2013]: SARS response to submissions

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Finance Standing Committee

03 February 2014
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

SARS briefed the Committee on its responses to the submissions of the public hearings on the Customs Bills and listed the groups SARS had consulted since November 2013. Progress had been made on finding common ground with a number of interested parties. The meeting was reminded that the Bills were a framework for modernising the existing customs laws which harked back to 1964. The Bills had been aligned to the National Development Plan and were transparent and predictable. The Bills would allow for advanced rulings to be issued and for customs to be subject to an ombud. The Bills aimed to promote exports and South Africa as an export hub and was aligned with VAT laws. Clients would only submit a single clearance document. The Bills aimed to facilitate trade and control over trade. To improve control, the registration and licensing of the supply chain had to be improved. Proper records had to be kept and a stricter penalty regime implemented.

The biggest issue raised at the public hearings had been that of inland terminals like City Deep. It was not SARS intention to close inland container terminals or disrupt the seamless movement of goods, rather it sought better information prior to the goods landing in the harbour. It had already launched a new customs system which was not paper based and which was centralised with interventions being based on a risk assessment. For this assessment, the manifest information was not enough therefore the clearance declaration had been introduced. The term “inland terminal” and not that of “inland port” had always been used in current legislation.

The presentation also covered the SAFE Framework and the World Customs Organization Bali conference and the General Annex of the Revised Kyoto Convention, the clearance document, inland terminals, the fall back clause, the SA Oil and Gas Association and the SA Institute of Chartered Accountants Association’s concerns, the increase in the duty re-assessment period and advance rulings. The South African Association of Freight Forwarders, the South African Association of Ship Operators and Agents and Transnet all supported the Bills. Issues still to be addressed were penalties and groupage.

Members asked what the practical implications were regarding the clearance of goods at inland terminals. Could proposals for clauses be presented to SARS? Was the fall back clause included to allow for discretionary provision without the need for amendments to be passed. What would the impact of clearance documentation be on inland terminals and would it preserve SA’s status as a gateway to Africa. Could SARS’ need for better information not be attained through better rules and regulations for the current legislation. Was a single journey now no longer possible and would the importer now have to arrange transport from the harbour. Could clarity be given on the movement of goods under customs control?
Were the revised proposals supported by SAAFF? Could clients not be informed prior to automatic deregistration. Would the new bill result in containers taking longer to get through ports? Would the legal status of terminals would change in the new Act. Members proposed that inland terminals be clearly defined.

Meeting report

SARS response to public submissions
Mr Kosie Louw, Chief Legal Officer at SARS, said that progress had been made on finding common ground with a number of interested parties and that the slide presentation would be augmented by an extra document which would be made available the following day. He reminded the meeting of the positives which would flow from the Bills. He said the Bills were a framework for modernising the existing customs laws which harked back to 1964. The Bills were written in a simpler style and made clear the policies, procedures and processes which would be followed. The Bills had been aligned to the National Development Plan and were transparent and predictable. The Bills would allow for advanced rulings to be issued and for customs to be subject to an ombud. The Bills aimed to promote exports and South Africa as an export hub and was aligned with VAT laws. Clients would submit a single clearance document and not two documents as was done presently. The bills aimed to facilitate trade and control over trade. To improve control, the registration and licensing of the supply chain had to be improved. Proper records had to be kept and a stricter penalty regime implemented. He listed the groups SARS had consulted with since 5 November 2013.

The biggest issue raised at the public hearings had been that of inland terminals like City Deep. It was not SARS intention to close inland container terminals or disrupt the seamless movement of goods; rather it sought better information prior to the goods landing in the harbour. It had already launched a new customs system which was not paper based and which was centralised with interventions being based on a risk assessment. For this assessment, the manifest information was not enough therefore the clearance declaration had been introduced. The term “inland terminal” and not that of “inland port” had always been used in current legislation.

On the issue of where the border was and where liability changed hands, he said the importer was liable and there was no change between the old and new legislation. SARS had sought, and presented, three legal opinions. These legal opinions confirmed that the seller’s duty and responsibility ended when goods were dispatched with CIF (Cost, Insurance and Freight). At that point the liability changed from the seller to the buyer.

The SAFE Framework, which had been referred to in the submissions, also asked for a customs clearance declaration and an advanced cargo declaration. South Africa was more relaxed because the customs declaration only needed to be submitted three days before the ship was due to reach South Africa. Therefore the request for a customs declaration was a move towards the SAFE Framework.

On the matter of the World Customs Organisation (WCO) Bali agreement, he said Article 9 was limited to the manifest submissions document and not the customs clearance document. South Africa had taken part in negotiations and Article 9 was subject to domestic law and countries could prescribe its own requirements. SARS had checked with the United States and the United Kingdom and European Union that this was correct. The US feedback was that it could not be based just on the manifest. The Canadian view was similar to the US. The UK and Russia required transit declarations on the tariff, value and origin of goods.

In the revised SARS proposals regarding inland terminals, it had requested that the clearance document be submitted three days before the ship reached South Africa because Transnet needed three days for organising its rail stacks to distribute the containers. Penalties would be incurred if it was not submitted three days after the ship had reached port. When the clearance document was submitted, a provisional release was issued which was followed by a final release. The revised legislation would allow for more certainty, predictability and there would be a 12-month period where implementation would be delayed. A proposed fall back clause would be used to address any anomalies and unforeseen consequences which might arise.

He said goods fell into three categories; high, medium and low risk goods. The South African Association of Freight Forwarders (SAAFF), the South African Association of Ship Operators and Agents (SAASOA) and Transnet all supported the Bills. Issues still to be addressed were penalties, which would be reduced by 50%.

Regarding the concern of the SA Association of Oil and Gas Association (SAOGA) around a manual application process, he said that it would be automatic and the clearance document could be the application document and would be provided for in the rules.

Regarding the SA Institute of Chartered Accountants Association (SAICA)’s concern over the rules and regulations, he said they would be published for comment and SARS would plan workshops. The rules were not completed yet because the new legislation had 1200 clauses as compared to the 120 clauses of the old legislation. The registration legislation was to improve customer control as SARS needed a clean, up to date register of clients hence the proposal for the automatic expiry of registration if inactive over a three-year period.

The move to increase the duty re-assessment period from two to three years was to align it with other tax types and the period for refund applications, similarly, had also been increased to three years.

Advance rulings would be for three years and be subject to a payment of a fee which would be used to recover costs and discourage frivolous applications. There would be a unit with specialised staff to give rulings. Malaysia, Canada and Hong Kong were countries which charged a fee.

He said the legislation was consistent with the WCO Bali conference and the General Annex of the Revised Kyoto Convention.

Discussion
Mr D Ross (DA) asked what the practical implications were regarding the clearance of goods at inland terminals. Could proposals for clauses be presented to SARS? Was the fall back clause included to allow for discretionary provision without the need for amendments to be passed. He was concerned that the legislation would create barriers to trade. What would the impact of clearance documentation be on inland terminals and would it preserve SA’s status as a gateway to Africa. Could SARS’ need for better information not be attained through better rules and regulations for the current legislation. He proposed that inland terminals be clearly defined. Was a single journey now no longer possible and would the importer now have to arrange transport from the harbour. Could clarity be given on the movement of goods under customs control?

Ms J Tshabalala (ANC) asked what was required regarding clearance declarations so that she could understand the claim that it would result in an administrative burden. Were the revised proposals supported by SAAFF? Regarding the automatic deregistration of clients, she asked whether the clients could not be informed prior to the revocation of the registration.

Mr D Van Rooyen (ANC) said the Bills would not impact adversely on Inland Terminals.

Mr N Koornhof (COPE) said he was very pleased at the progress made by SARS. Would the new bill result in containers taking longer to get through ports?

Mr Louw replied that SARS was undergoing a modernization process. It was moving from an office bound process where documents were stamped to a centralised, integrated, electronic system where decisions would be made and from which messages would be sent to terminals. This process therefore required the advance clearance declaration to get better information on which a risk assessment could be made. This was in line with international best practice.

The fall back clause was for any unintended consequences and allowed for a reversion to the current system. The fall back clause was not ideal and should not be made permanent and the legislation should have a sunset clause where the fall back clause lapsed after three years.

The manifest document did not contain enough information for SARS’ risk assessment needs. There was no need to make changes around the definition of an inland port as only the term inland terminal was used. The seller’s responsibility for goods ended when they paid insurance and freight and the containers were loaded onto the ship. After that the importer was liable for duties and goods would move based not on the manifest but on a clearance document which had to be submitted at least three days prior to the ship docking. Shipping lines had confirmed that they would issue bills of lading and take responsibility for multi-modal transport via Transnet or road haulage subcontractors.

SARS was in no doubt that they were within Article 9 of the Bali convention. Parts of SARS’ procedures were advanced clearance and provisional release of goods so that the supply chain could be managed.
Mr Louw said only one to two per cent of the total containers arriving at ports were inspected therefore the inspections needed to be smarter and therefore the need for better information via the customs clearance document.

Regarding Mr Koornhof’s question, he said it would take longer, but they were intent on making it quicker and predictable for legitimate trade. SARS was moving to the forefront of customs systems internationally as witnessed by study visits from Asian, European and African countries coming to check out the South Africa systems.

Regarding the fear that inland terminals would be closed, Prof Sieg Eiselen, of the University of South Africa, said that the information that was being asked for in the clearance document was already available from the contract and therefore was not administratively onerous.

He said that ship owners and carriers had said that it made no difference, irrespective of customs clearance. There was no linkage between the customs declaration and carriage. 60% of Durban’s trade currently was already pre cleared and so there was no reason in law why it should be affected.

Mr Franz Tomazek, Executive Head of the Legislative Research and Development at SARS, said China had been contacted regarding the benchmarking exercise but they had not responded yet. The national average for the incidence of non-compliance in customs declarations was 14% but City Deep’s figure was almost double that at 26%.

He said if a business had not done work for three years then it was reasonable to assume that it was not in business.

Mr Louw said that a message could be sent just prior to the expiry of the three-year period as a reminder.

Mr Ross asked whether the legal status of terminals would change in the new Act. Was it the case in the past that responsibility lay with the importer.

Mr Louw replied that clearance would not take place at the terminals or at City Deep but would be centrally done and the result transmitted to the geographic location. The importer was responsible for duties in the past and would be in the new legislation also.

He said the request by SARS for a customs clearance declaration  was in accord with the  World Customs Organization (WCO) Bali agreement regarding the ease of transit and reducing logistical costs.



The meeting was adjourned.
 

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