SA ministers’ customs duty dithering ‘costs economy and importers billions’

17 Aug 2022

Inertia from finance and trade ministers is hurting import businesses and turning investors off South Africa, says a report by XA International Trade Advisors.

Ministerial indecision and government inefficiency are causing significant delays for importers, says a new report by an international trade consultancy.

The XA Open Cases Report, based on an independent analysis of publicly available data, says the fiscus has lost R1.25-billion while importers wait for up to two years for decisions on overdue Import and Export Control (Itac) customs duty investigations which should take no longer than six months.

Donald MacKay, the CEO of XA International Trade Advisors, told media on Tuesday that lengthy delays by Trade, Industry and Competition Minister Ebrahim Patel and Finance Minister Enoch Godongwana to take final decisions in dozens of Itac customs duty investigations had not only caused more than R1-billion in revenue to be lost to the fiscus, but their dithering had material implications for affected industries, costing them an additional R2-billion for importing goods that are not made locally.

Nobody wins, because both the fiscus and SA industries are taking a knock. For the latter, in some cases, there is no possibility of recovery as many businesses cannot sustain the losses.

SA collected about R58-billion in customs duties (which include duties on imports, specific excise on imports and ad valorem duties), in the 2021/2022 financial year, comprising 3.7% of revenue collection by the SA Revenue Service (SARS). These delays equate to about 5.8% of the country’s total customs duty collections.

The report details that in many cases industries wait for about two years for an import duty investigation, much longer than they should: for industries in distress, these investigations should take no more than four months, and no longer than six for other industries, according to the report.

As at 1 July 2022, the date of the report, the following investigations were outstanding:

customs duty review

Duty review investigations are initiated by Itac to determine the appropriate levels of duty on a product.

Once an application has been received by Itac, it reviews the contents and an Itac commission decides if a case should be initiated, in which case a notice is published in the Government Gazette and interested parties have about a month to respond, the report noted. These parties can request up to two weeks’ extension and then the comment period closes.

Ultimately, the commission decides whether to grant the duty change and makes a recommendation to the trade, industry and competition minister, who then considers the recommendation and either sends it back, rejects it or approves it and asks the minister of finance to make the change. The finance minister then instructs SARS to amend the duties. Delays are only caused by Itac, the minister of trade, industry and competition, the minister of finance or SARS.

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Some cases are “privately” terminated — this is when the applicant and Itac or the minister of trade, industry and competition reach an agreement and the matter doesn’t proceed, but no notice is published, which means the case is officially still open. This has all sorts of negative implications.

The report said it would make sense to set a time limit on tariff investigations of 18 months so that they are forced to be completed and all uncertainty is removed. “Of the 43 tariff investigations and three anti-dumping investigations which are currently open, 27 are overdue [58%], so this time limit is important.”

customs duty review

MacKay called these delays “enormous and most importantly, unnecessary, because the problem could be quickly resolved, since the majority of these cases have been fully investigated by the Itac, and simply need to be signed off by the ministers.

“The question is, why are they delaying these decisions? While some recommendations are simply being left to gather dust, in many cases it would seem that applicant companies are being squeezed by Minister Patel through ‘reciprocal agreements’, for something in return for the duty or tariff concession, jobs, investment, training, transformation, price controls. But this squeeze has a cost.”

MacKay said investors and traders need predictability, but the duties had become very unpredictable.

“Whatever the rules of the game are, you should know them before you begin and they should remain constant. Most importantly, everyone should have equal access to the rules and no one should be able to influence the drafting of the rulebook in secret.

“We urgently need to bring predictability back. Not predictability of outcomes, but predictability of the process. The benefits to the fiscus and the economy will be material. Remember the R2-billion in duties being paid, when the goods can’t be supplied locally? Let’s get that flowing into the economy immediately.” DM

Business Maverick has asked for comment from the ministries of finance, and trade, industry and competition. This story will be updated once they have responded.

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