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

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Presentation on theme: "Customs Control Bill & Customs Duty Bill Presentation to the Standing Committee on Finance 30 October 2013."— Presentation transcript:

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 ProductQuantityValue Ave unit price China Women’s knitted woollen jackets8,755,986R16,263,830R1.86 Women's knitted cotton skirts1,287,470R9,902,657R7.69 Women's woven skirts of other materials6,588,288R23,090,790R3.50 Bangladesh Women's knitted woollen skirts128,280R284,713R2.22 Women's woven synthetic skirts2,750R14,540R5.29 Men's woven trousers of other materials69,034R557,117R8.07

9 Stealing from government Product Declared Value Duty paid Actual Value Actual duty owed Difference Woven men’s trousers R8.07R3.63R80-R120R36-R54R32-R50 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 Product Country of origin Date importedQuantityValue Unit price Cotton t-shirtsChina16 Feb 201225,400R 11,014R0.43 Cotton t-shirtsIndia17 Feb 2012113,040R 73,685R0.65 Cotton golf shirtsChina10 Feb 201232,544R 22,054R0.68 Woven blouses of manuf fibres China3 Feb 201217,151R 14,092R0.82 Jerseys of manuf fibres China3 Feb 201234,434R 28,551R0.83 Woven dresses of synth fibres China8 Feb 201212,660R 17,207R1.36

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

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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