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Customs Control Bill & Customs Duty Bill

Customs Control Bill & Customs Duty Bill. Presentation to the Standing Committee on Finance 30 October 2013. Introduction. SACTWU ±100 000 members Primarily operating in CTFL manufacturing industry Members  intimately affected by illicit and illegal trade (major job loss driver).

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Customs Control Bill & Customs Duty Bill

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  1. Customs Control Bill & Customs Duty Bill Presentation to the Standing Committee on Finance 30 October 2013

  2. Introduction • SACTWU ±100 000 members • Primarily operating in CTFL manufacturing industry • Members  intimately affected by illicit and illegal trade (major job loss driver)

  3. CTFL Industry • Formal & informal CTFL sectors employ more than 130,000 people • Govt has identified CTFL as an engine for job creation • Significant employer of women (82% in clothing) and in areas where few other opportunities exist

  4. State of the Industry • Jobs bloodbath in the 2000s due to import flood, incl illegal goods • Fewer job losses in past 3 years • Attributable to industrial and revenue interventions • Yet still precarious

  5. Customs Fraud • Customs fraud • Impacts CTFL and other industries • Occurs in multiple forms: under-invoicing, false declaration of goods, smuggling, rerouting goods via third countries, etc

  6. Customs Fraud (cont.) • Fraudulently imported goods sold into local market at prices which: • lead to job losses and deindustrialisation • robs the fiscus of much needed income • undermine industrial policy investments

  7. How Low Can You Go? • Ave. declared unit prices per product (not the lowest prices): • women’s knitted woollen jackets imported from China in 2012: R1.86 • women's knitted woollen skirts imported from Bangladesh in 2012: R2.22

  8. Ave Prices: Clothing

  9. Stealing from government Import duty on woven men’s trousers = 45% If goods declared at R8.07 per unit = R3.63 duty Likely real value of imported garments = R80 - R120 per unit Duty should have been R36 - R54 per unit Therefore on average btw R32 - R50 of duties was evaded for each pair of trousers imported

  10. Actual Consignments • Eg. False prices declared to customs on just one day: 16 February 2012 • Local importer brought a consignment of cotton t-shirts into South Africa, imported from China • Consignment volume: 25,400 t-shirts • Likely real value: R20 – R50 • Likely real duty due: R9 - R22.50 • Claimed value: R11,014 or • Claimed Unit price: R0.43 per t-shirt • Duty paid: Only R0.19 per t-shirt • State received btw 0.8% and 2% of duty owed

  11. Actual Consignments

  12. Extent of Customs Fraud • Difficult to measure • Available data suggests extent of CTFL customs fraud and that it has skyrocketed over last 10 years

  13. Clothing: SA & China Undeclared clothing imports: R7.1bn Clothing exports declared by China: R14.8bn Clothing imports declared by SA: R7.7bn

  14. Lost Revenue • ±R3.2bn on these imports in 2012 • Equivalent of: • Child support grant to over 900 000 people for a year • Old age or disability grant to over 200 000 people for a year • 35,000 RDP housing subsidies

  15. Customs Bills • Nedlac facilitated constructive negotiations, resulting in Bills including: • harsher penalties for customs offenders • naming and shaming of customs offenders • suspending, revoking and withdrawing import licences of customs offenders • stemming the flow of illegally imported goods into the local market • disposing of seized goods in a manner that does not undermine local production and • additional customs capacity • Also: limitations on Ports of Entry

  16. Customs Capacity • Dearth of human capital to inspect ports • Yet utility in conducting more inspections • E.g. C.C. Bill (S10)

  17. First Port of Entry • Take opportunity to manage risk of custom fraud / promote legitimate trade • Heartily endorse attempts to curtail customs fraud at in-land ports (Section 194 of CC Bill) • Prior research shows in-land ports major area of non-compliance

  18. Supply to Market • Manage distribution of such goods into the market • Treat handling of illegally imported goods like handling of stolen goods • E.g. Section 887(1) & (2) of the Customs Control Bill

  19. Harsher Penalties • Substantial justification for more stringent penalties to dis-incentivise customs fraud • Bills include: • Higher fines • Graduation of fines to more serious category of offence • Compulsion for courts to consider jail sentences • Additional punitive measures (e.g. unjustified enrichment) • Liability of persons perpetuating customs fraud • Name and shame

  20. ‘Removing the Cancer’ • A mechanism to exclude companies which repeatedly break the law • Promote legitimate trade and encourage legality • E.g. S609, S610 and S618 of the Customs Control Bill

  21. Conclusion • Strong policy framework built to address developmental priorities over past 4 years • Keystone in architecture: alignment of industrial and trade mechanisms • CC Bill and CD Bill strike blow at customs fraud • Potential to: • Address challenges in other industries • Enhance trade legality and employment creation • Advance equality, equity and legality

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