Understanding customs rules has become a daunting task for many businesses. Here are six specific areas of importance when trying to understand basic customs concepts in South Africa.
SARS is the South African Revenue Service.
What are Customs Procedure Codes (CPC) in South Africa?
What are Tariff Headings in South Africa?
What does Price Paid or Payable mean in South Africa?
What is a Value Determination from SARS? What is a Related Supplier?
6 Valuation Methods in South Africa
Trade Agreements with South Africa
What is Preferred Trader Accreditation in South Africa?
What are Customs Procedure Codes (CPC) in South Africa?
This is the purpose of the customs transaction for example, clearance for home use of goods, bonded removal of goods, or goods manufactured under rebate of duty. In the new Customs Acts, the CPC codes provide SARS with an opportunity to manage the customs supply chain using a systems approach. Any Customs clearance with an incorrect CPC, or where the physical movement of goods does not match the CPC, will indicate possible non-compliance to SARS. Incorrect procedures may affect the customs control of goods, attract penalties and possibly impact the tax status of goods. This may result in the refusal of drawback claims and refunds by SARS due to the use of incorrect or sub-optimal CPC export codes, with consequential financial impact and prejudice.
While tariff headings at a six digit level are internationally harmonised, using these on commercial invoices must be considered carefully. Tariff opinions at origin or destination occasionally differ. A tariff heading applied on a customs clearance which differs from a tariff heading on the commercial invoice often prompts customs officials to question the correctness of the classification of goods, and hence the payment of additional duties and taxes. This usually results in customs detentions and further investigations, including appeals to SARS. Large sums of surety (in lieu of duties, taxes, interest and penalties) may be required pending finalisation of such investigations. Importers and suppliers should pre-empt the correctness of tariffs utilised on commercial invoices prior to the supply of goods, and not due to the potential tax impact only. Import prohibitions and restrictions are all tariff classification based and can cause harm to a business if not properly addressed. It is however not a Customs requirement nor is it mandatory for commercial invoices to contain tariff headings.
The price paid or payable for goods is normally adjusted for customs duty and VAT purposes by adding or subtracting dutiable or non-dutiable charges to arrive at the Customs Transaction Value. In South Africa, the Free On Board place of delivery is assigned as the point of valuation for customs purposes. Commercial invoices which are governed by trade and delivery terms other than the FOB* point (i.e. EXW* and CIF*) typically attract such charges. These must be used in the adjustment of the invoice price to arrive at the Transaction Value. Over the past few years, SARS has laid particular emphasis on the need for importers to produce proof of these charges for customs clearance, rather than relying on charges specified on commercial invoices. Freight Statements on C and D term invoices have attracted considerable attention in this regard and must be available at time of customs import entry. The new Customs legislation provides a nonexhaustive list of charges that must be added if not included in the invoiced price, or may be deducted (supported by actual cost invoices) if included in the invoiced price. Here are some examples:
| Adding to the Price (Dutiable)
- Commissions, but not buying commission
- Brokerage fees
- Cost of packing, containers and labor
- Assists (materials, tools, dies, designs, etc.)
- Royalties, licence, patent fees, etc.
- Value of proceeds which accrue to seller
- Any costs, charges and expenses FOB
Deducting from the Price (Non-Dutiable)
- Cost of transport and insurance ex FOB
- Port costs at the place of entry to South Africa
- Duties & Taxes in South Africa
- Customs refunds or rebates at export
- Interest on the price paid or payable
- Licence fees to reproduce goods in South Africa
If a relationship between an importer (in South Africa) and a foreign supplier exists, and if the relationship affects the Transaction Value (see also point 5), you are advised to seek a Valuation Determination from SARS. If, in the course of a SARS investigation, the need arises to utilise alternative Methods of Valuation owing to, for example, unfair competition, then a belated Determination (or Ruling) by SARS may result in the short payment of duties and taxes for records back-dating two years. In the new Customs legislation, the period for retrospective adjustments will be three years. A relationship between an importer in South Africa and a foreign supplier may exist between private individuals or business parties, or where a third person owns, controls or directs more than a 5% shareholding in each of them. In such circumstances the Transaction Value may be affected adversely and will require further inspection. Transfer pricing (the setting of the price for goods and services sold between controlled or related legal entities) will require special attention.
There are six Methods of Valuation. Method 1 is the primary Method, known as the Transaction Value. A supplier relationship which involves any discounts, refunds, drawbacks, royalties, transfer fees or the like must be reviewed by SARS in a Valuation Determination. This may result in an increase in the transaction price or alternate methods of valuation by SARS, increasing import duties and VAT. Other reasons why SARS may determine that a substantial increase in the transaction price is warranted, or an alternative valuation method should be used, include the undervaluation of goods by virtue of “abnormal” discounts; assists; samples supplied free of charge; goods supplied as replacement stock; suspected dumping of goods; or goods supplied below market related values (the so-called “indicative” values by SARS) in industries like Clothing and Textiles, Tyre and Rubber, and the Tobacco Industry. Methods of Valuation which may be used by SARS include:
Method 1: Transaction Value (primary method)
Method 2: Value of Identical Goods
Method 3: Value of Similar Goods
Method 4: Deductive Value Method (inferred from an established price)
Method 5: Computed Method (based on values supplied by the producer)
Method 6: Fall Back Method (any of Methods 1 – 5, applied within reason)
These fall into the domain of Rules of Origin. Trade Agreements are generally reciprocal in nature in that the benefit flows both ways. A noted exception is the so-called “generalized system of preferences” (“GSP”). Proofs of origin come in the form of certificates and invoice declarations for registered importers and exporters. Trade Agreements most commonly administered by SARS include:
SADC: Southern African Development Community
SADC-EPA: Economic Partnership Agreement between the European Union and the SADC
SADC-EFTA: Agreement between the European Free Trade Association and the SADC
SACU-MERCOSUR: Agreement between the Common Market Of The South and the Southern African Customs Union
The SARS PTA is modelled on the World Customs Organisation's AEO (Authorised Economic Operator) programme. In May 2017, SARS granted accreditation to 28 companies from more than 250 applicants reviewed. Companies have generally found it challenging to comply with SARS' accreditation requirements owing to a lack of understanding of the customs concepts discussed in this article. While some benefits of accreditation to importers and exporters can be questioned, an undisputable benefit is the assignment of a Customs Relationship Manager within SARS who is responsible for coordinating and assisting with client queries and requests.