Originally published June 2011
The SARS goal of creating a new legislative framework for the regulation of tax matters moved forward when updates to the Tax Administration and Customs Control Bills were published for comment. However, contradictions between the two Bills may delay the process.
The South African Revenue Service (SARS) has for years been priming the industry to anticipate the release of a complete replacement of the Customs and Excise Act No. 91 of 1964. During October 2009, the public finally received sight of the first published Customs Control and Customs Duty Bills, which comprised the first phase of the two-phase project.
The SARS explanatory memoranda accompanying the Bills at the time explained that the amendment of the legislation had the object of implementing a modernised system of customs control in accordance with, "current international trends and best practices". To this end, the SARS had undertaken to create a new legislative framework, whereby the current Act would be replaced by three separate pieces of legislation:
- a Control (administration) Act,
- a Customs Act, and
- an Excise Act.
The second phase of the project – the drafting of the separate Excise Bill – it was said, would take place after the two Customs Bills had been enacted into law during 2010. Nearly eighteen months later, neither of these events had taken place. SARS eventually published the second draft of the Customs Control Bill - for a "short second round for comment"- during April 2011.
Whereas the body of the existing Customs and Excise Act No. 91 of 1964 (as amended countless times) consists of only 122 sections, supported by thousands of Rules; the body of the draft Control Bill comprises 897 sections spanning 465 pages. Bearing in mind that this Bill is only one of the three which cumulatively will replace the existing Act, it is apparent that the legislature's approach is correctly to include more of the content of this complex indirect tax law into the actual Act, and therefore presumably decrease the volume of new supporting Rules and Regulations (still to be drafted).
There are certain noteworthy details and additions to the second draft Control Bill which require fresh consideration by interested parties who may have commented on the first draft.
Although much of the content of the Bill is really are-wording or formalising of the law or practice already in place, there are also a number of provisions which will result in future improvements in the approach of customs authorities to the public. For example, there is:
- an emphasis on electronic reporting to speed up processing;
- a special fast-tracking clearance and release procedure available on application; and
- greater flexibility of customs authorities with regard to extension of time periods and the granting of certain authorisations.
However, there are also provisions which will change the manner in which disputes between SARS and taxpayers will be resolved – not all of which are in the taxpayer's favour. Some of these provisions need to be considered in the context of the wider legal framework governing administrative justice and the constitutional rights of the taxpayer.
As explained by SARS at the time of first publication, the Customs Control Bill has been drafted to serve as a "platform" for the implementation of all other tax laws that are concerned with goods imported or exported from South Africa. In other words, certain other tax acts will rely on the Control Bill for their implementation. For example, the proposed Customs Duty Act (the Duty Bill); the proposed Excise Act (not yet in draft); VAT Act; and Diamond Export Levy Acts will ultimately have to be read in conjunction with the Control Bill.
Meanwhile, during December 2010, the second draft of the Tax Administration Bill (TAB) was also made available for public comment. The drafting of the TAB was first announced in the 2005 Budget Review as a project, "to incorporate into one piece of legislation certain generic administrative provisions, which are currently duplicated in the different tax Acts. These provisions include, for example, the objection and appeal procedures, search and seizure provisions, provisions relating to secrecy and collection processes".
One would have thought that the Customs and Excise Act No. 91 is one of those tax Acts, as it is one of the pieces of tax legislation administered by the Commissioner for SARS, but the TAB specifically defines "tax Act" to mean, "this Act or an Act, or portion of an Act, referred to in section 4 of the SARS Act, excluding the Customs and Excise Act". "Tax" in the TAB is defined to include, "a tax, duty, levy, royalty, fee, charge, contribution, additional tax, penalty, interest and any other moneys imposed under a tax Act".
There must be reasons for the SARS need to administer import / export related taxes differently from other taxes - hence the need for a different control / administration act relating to these indirect taxes. However, problems with conflicts and lack of clarity are anticipated.
The Customs Control Bill defines "tax" only in relation to goods, and to mean, "an import tax, export tax or domestic tax on goods"; and therefore defines a "tax levying Act" as "any legislation, other than this Act, imposing or imposing and regulating the administration of a specific tax on goods, and includes any of the following Acts" (thereafter listing the Customs Duty Act; the VAT Act; the Excise Duty Act, and Diamond Export Levy Acts)".
It is noted, however, that the VAT Act and Diamond Export Levy Act are also listed as the "tax Acts" in the SARS Act schedule and therefore as defined in the TAB. Could this mean, for example, that VAT on goods will be administered via the Customs Control Bill whilst VAT on services will administered via the TAB?
This lack of clarity regarding the law on administration of certain Acts will pose a problem, as the approaches of the administration / control bills are not consistent. TAB seeks, for example, to reduce the discretion of lower level officers whereas the Customs Control Bill adds a further discretionary decision altering power at any level to any officer, even in respect of his or her own decisions. The TAB deals with seizure of assets, for example, by making provision for seizure of assets about to be dissipated and a preservation of assets order by a High Court that must be applied for by SARS within 24 hours of seizure.
In respect of the "pay-now-argue-later" rule, TAB proposes that the SARS discretion to depart from this rule and grant suspension of payment now be based on defined criteria and allows for suspension to be applied for before a formal objection is lodged. In contrast, the Customs Control Bill seeks to strengthen the position of SARS regarding seizure and confiscation of assets and the relative bargaining power of taxpayer vs. customs authority in the event of an alleged contravention of the Control Bill.
It is conceivable that a taxpayer contravening the VAT Act (and TAB) is also separately contravening the Customs Control Bill and may ultimately attract penalties in terms of both pieces of legislation and their procedures. The Customs Control Bill confuses matters further by seeking, in the chapter relating to mechanisms for recovery of debt, to specifically incorporate certain relevant provisions of TAB.
Apart from experiencing confusion around the above issues of the relative scope of TAB and Customs Control Bill, importers and exporters are bound to feel more tightly painted into a corner by SARS when it comes to dealing with demands for payment of penalties and enforcement of debts.
The Customs Control Bill now categorises penalties (into five categories) which may be imposed, in certain circumstances, on mere notice and allegation by SARS of a "breach" of the law, and requires payment of the penalties within five days of such notice. In terms of the proposed amendments, a taxpayer could for example, face a notice from a SARS officer alleging a breach of the Act and demanding a fine of up to R 1 million, payable within five days of the notice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.