Price reference tool hurts legitimate textile importers

The Southern African Clothing
and Textile Workers’ Union
(SACTWU) has labelled
customs fraud a form of
“economic sabotage” committed by
certain importers where duties on
imported goods are illegally avoided
by engaging in activities that include
the under-valuation or the misdeclaration
of goods.
In 2009, because
of fraud complaints,
Sars kicked off a
clothing and textile
(CAT) campaign
to stop illegal,
cheap imports from
entering South
Africa. In line with
this, a new pricereference
system
was introduced in
November 2011.
The system values
textile imports based on referencing
negotiated by government, labour
and business. Any textiles imported
at a price lower than the reference
index are stopped. This inevitably
leads to substantial delays during the
investigation into value of the goods.
It is also common practice for Sars
to demand a provisional payment, as
they are entitled to do in terms of the
Customs & Excise Act No. 91 of 1964
(“the Act).
The price-reference system has
many legitimate businesses suffering
due to the many customs stops they
must endure,
giving rise to
considerable
costs of delayed
container
demurrage,
depot storage
fees and
contractual
penalties, not
to mention
the repeated
provisional
payments that
must be made to Sars pending release
of the goods. To make matters worse,
Sars does not seem to be able to
deal with the volume of stops being
imposed on the importers.
lost sight of the fact that the reference
index is only a tool and not a method
of valuation. The methods for valuing
goods are clearly set out in the Act,
and largely mirror the international
provisions of the World Trade
Organisation (WTO) Valuation
Agreement, which is incorporated
into our legislation.
The pricing reference is at best
indicative of
value and
should be
subject to
the WTO
guidelines. The reference does not
consider that many factors can affect
the price of an item, including cost
of labour, amount of fabric utilised,
economies of scale, cost of trimmings
and accessories.
Article 13 of the Valuation
Agreement allows Sars to call for
security pending verification of
the value declared by the importer
in order to allow the goods to be
released. Section 107(2)(a) of the Act
states that the Sars Commissioner
must not, except on such conditions,
including conditions relating to
security, as may be determined by
him, allow goods to pass from his
control until the provisions of this Act
or any law relating to the importation
of goods has been complied with in
respect of such goods.
Where security is called for in the
form of a provisional payment to
allow Sars to verify value, it must be
understood that no liability has been
determined yet. Sars must therefore
finalise the investigation and decide
to either accept the value, or provide
reasons why the price payable is
validly rejected. Sars must then rely
on the next methods of valuation
in sequential order to make a value
determination.
If Sars, at the time of the stop,
suggests that the goods have been
undervalued then, in effect, it will
have made a valuation determination
and the importer has the right
to follow the applicable remedies
applying to such a determination.
In most cases, Sars simply raises
provisional payments at the time of
the stop and then fails to take the
matter further. The result is that
Sars has never made a valuation
determination and, strictly speaking,
importers have every right to
demand repayment of the provisional
payments unless Sars makes a
determination within a reasonable
period.
By Quintus van der Merwe, head of
International Transport, Trade & Energy
at Shepstone & Wylie Attorneys
INSERT
Sars officials on the ground
have lost sight of the fact
that the reference index
is only a tool and not a
method of valuation.
– Quintus van der Merwe