Global accounting and consulting firm Deloitte has mixed feelings about the publication of the Customs Administrative Monetary Penalty and the Excise Administrative Monetary Penalty System, currently out for comment.
“On the positive side, it promotes consistency, predictability and transparency,” says Deloitte director of customs and excise tax Jed Michaletos. “In the past, customs had internal guidelines, which it would refer to, but never published. One of the challenges was that different customs offices in the country would give different penalties, if any, for the same contravention,” he says.
On the negative side, there appears to be certain fundamental flaws with the proposed system, Michaletos explains, as, effectively, the new penalty guidelines work on a strike-three rule.
For example, in certain categories, the first offence might result in a R5 000 penalty, the second offence, a R8 000 penalty, and criminal proceedings could be instituted for the third offence. Deloitte believes that this does not make practical sense, as the South African Revenue Service (Sars) has not taken the volume of traders’ transactions into account. For instance, some companies may have thousands of clearances, with a 1% error ratio, while others may have ten clearances with a 50% error ratio, but the penalty would be the same for both companies.
”Deloitte anticipates that based on the comments received on the new system, Sars will acknowledge that there are certain fundamental flaws in the initial draft, which we believe will be substantially revised,” he says.
Draft Customs Bills
Meanwhile, Deloitte ran a series of workshops around the country to help its clients get up to speed with the new draft Customs Control Bill and Customs Duty Bill, and their potential impacts. After the sessions, the overall consensus from the clients was that the impacts will be more significant than expected, says Michaletos.
He says that the legislation in the two new bills is comprehensive, well structured and logical. A criticism, however, is that, in making it more user friendly, it has become much more bulky. “Although it increases the administrative burden for taxpayers, it helps them to understand what they need to comply with and why they need to do it,” he explains.
Many of the changes that impact on customs clients are around timelines, detailing how long they have for certain actions, and around some of the detail that needs to be in the supporting documentation, he says. Many of the timelines have been shortened significantly. For instance, where companies previously had seven days to clear goods, they now have three days. Also, goods that could previously be stored in a warehouse for two years can now only be stored for one year, he says.
“Customs clients need to understand what the changes are so that they can make the necessary preparations, such as amending systems. For some companies, the changes are not practically easy to make, so they need to start planning for them well in advance,” Michaletos advises.
A New Era
Meanwhile, he says that Sars is moving to a paperless, automated and simplified environment. “There are many exciting changes around modernisation in customs in terms of fast-tracking and simplifying procedures,” Michaletos says. A potential change is a ‘green channel’ for goods, where the goods of accredited or approved trusted traders, with proven systems and controls to manage all the risks and legislation, move through customs and are only checked afterwards, he says.
“Customs is moving into a new era. While some changes may be daunting, on the flip side, it is an exciting time for business,” he says. He believes that companies that embrace the new tax and customs changes and run with them proactively will benefit long term. “While this will require an investment in systems, people and knowledge, companies could gain significant competitive advantages over competitors that have not made that investment,” Michaletos concludes.