Good intentions – but at what cost?

The provisions of section 29 of the Taxation Laws Second Amendment bill which is due to introduce a new section 94 to the Customs & Excise Act 94 of 1964 in or about September 2009, rings a warning bell. The proposed amendment probably finds its origin in (the now revoked) section 103(1) of the Income Tax Act and provides that: The Commissioner may on reasonable grounds rule that any scheme entered into or carried out with the effect of avoiding liability for duty or reducing the amount of duty, be disregarded and the Commissioner can determine liability as if such scheme did not exist. The proposed amendment goes on to cast the net widely in respect of what may be interpreted to be a "scheme". The most problematic amendment is that section 94(1) (b)(iii) will provide that where Customs questions whether a scheme exists, it will be presumed in the absence of evidence to the contrary that raises a reasonable doubt, that the scheme was entered into to avoid such duty. In other words, the person against whom a ruling is made will bear the onus of proving that the goods were not being entered under a "scheme". This proposed amendment is in our view problematic because while the intention is to catch those that try to classify goods improperly, it: ● Has the potential to cause havoc if Customs continually questions whether goods are not being entered under a scheme. This will cause very substantial delays with the importer having to try to prove that the goods are not being entered under a scheme. In the meantime importers will be burdened with the costs of detention, demurrage, storage and the like, not to mention the possibility of complications if such goods were to have been delivered to a customer within a specified date; ● Is likely to give rise to a plethora of litigation which is going to be costly for the importers and the revenue authorities; ● Creates a reverse onus where an importer may notionally be faced with criminal prosecution. The constitutionality of this reverse onus must be questioned; ● May prove to be inconsistent with the General Rules of Interpretation for the Classification of Goods which apply in terms of the Harmonised System issued by the World Customs Organisation and as is provided for under section 47 of the Customs & Excise Act. While one sympathises with the revenue authorities who are tasked with enforcing due compliance on the entry of goods, the continual legislation of regulatory provisions sometimes complicates matters. It brings into serious question whether the vast majority of honest businessmen who drive our economy would be unnecessarily hamstrung by provisions that are being enacted to cast a wide net to catch those acting dishonestly. In reality the General Rules of Interpretation provide sufficient tools if applied properly to enable Customs to classify goods correctly. The proposed amendments will create uncertainty. Many businessmen that have arranged their affairs according to perfectly acceptable business principles, including the principle that one should be allowed to arrange one's tax affairs as efficiently as possible, will now be faced with a dilemma whether such business might be regarded as a "scheme". The provision which allows Customs a wide and draconian power will be administered at branch level. It is not the Commissioner who will be making decisions on a day to day basis but the officers employed by Customs, many of whom battle to come to grips with the intricacies of interpretation of a complicated Act.