New Bill proposes punitive penalties

The fight over South Africa’s new customs legislation is far from over as the industry prepares to deliver comment to parliament’s standing committee on finance (SCoF) before the end of the year. While concerns over the impact of the new Customs Control Bill and the Customs Duty Bill on inland ports continues to grab headlines, role-players have said another cause for concern is the new legislation’s approach to penalties for non-prosecutable breaches. According to Mike Walwyn, chairman of the Port Liaison Forum at the Cape Chamber of Commerce and vice chairman of the South African Association of Freight Forwarders (Saaff), the attention has very much been on the impact of the legislation specifically on City Deep in Johannesburg losing its inland port status. “As a result several other structural problems with this legislation have been hidden and have gone unnoticed. One of these issues is that of the new penalty system that will be introduced.” Currently penalties are settled by departmental offer and mistakes by agents and forwarders are dealt with without any major financial impact on business. But this will change if the new bills become law in their current format. Walwyn says the new legislation is introducing a new set of penalties that will no longer allow for settlements with departmental offerings. This new sub-set of penalties will be compulsory and the importer or his agent will be unable to refuse payment of the penalty as is currently the case with the “departmental offer” system which has been in place since 1964. “For the first penalty a fine of R5000 will be payable, the second penalty within a three year cycle will be fined R10 000 and for the third it is R20 000. Thereafter each penalty incurs a fine of R20 000,” he said. “These are major costs for any business and we expect to see businesses go under in the face of penalties such as these. “ The process is also of such a nature that penalties have to be paid before any appeal can be brought to customs. “So if an entry is a day late or a wrong code is used these fines will come into play. Even if an entry clerk just makes a mistake by pressing the wrong key on the keyboard, a penalty will be registered which will have to be paid before it can be addressed with customs.” Along with the nonprosecutable penalty system another major cause for concern is that customs is the decision-maker in the appeals process as well. “Customs imposes the penalties and the appeal is also handled by them. It is an unfair system as they are both player and referee. A company’s only other option is to go to court, and that is costly. A tax court or a customs tribunal is needed to facilitate appeals.” According to experts the non-prosecutable penalty system also does not take the value of a shipment into account. “Essentially it means that you could be paying a R20 000 fine on a R700 shipment. And if you don’t pay the fines, they will simply suspend your trading licence,” said one forwarder, who preferred to remain anonymous. “I don’t think we are even close to understanding what the impact of these bills is going to be. The current Customs and Excise Act has 120 sections. The two new bills have 1200 and we have yet to see the rules that will guide these bills.” Another agent agreed saying that there was no real insight into what the bills really constituted as changes had been made over a four-year period and were not tracked. “Now at the 11th hour we are becoming aware of a variety of issues – not just the impact on the inland terminals – and it is clear that we need more time to thoroughly assess these bills.” Walwyn said in the Nedlac discussions with the South African Revenue Service (Sars) Nedlac wanted a much harsher penalty system to discourage fraud and underhandedness in the country. Sars eagerly agreed. However the R5 000, R10 000 and R20 000 penalty system are for inconsequential breaches that have absolutely no bearing on either fraud or underhandedness. Three breaches will have to be racked up in a three year cycle before they, together, are regarded as an offence, subject to departmental offer and departmental settlement in lieu of prosecution.