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Customs Control Bill & Customs Duty Bill

This presentation discusses the introduction of the Customs Control Bill and Customs Duty Bill to the Standing Committee on Finance in October 2013. It highlights the impact of illicit and illegal trade on the CTFL manufacturing industry, the state of the industry, and the extent of customs fraud. The presentation also proposes measures to combat customs fraud and promote legitimate trade.

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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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