Managing your customs risk

by | Sep 14, 2022

True story:

“Our business was in the importation of vinyl and related products for signage applications. We were fortunate, at the time, to hold several agencies and this meant that we imported materials from around the globe. During a particularly busy period we needed to on-board an additional import and clearing agency. We chose a supplier and submitted the tariff headings to them under which they needed to process the shipments.

They advised us instead to send in our product specification sheets, so they could verify the tariff headings. Once they had these in hand, they advised us that we had in fact been importing under the incorrect tariff headings. Our agency partner had changed the make-up of the product which enabled us to import under a heading which was cheaper.

We were able to conduct an audit of the products in our portfolio, which realized a saving of around 12% per annum after the revised scheduled was put in place.”

Any product imported or exported from the Republic of South Africa needs to be assigned an HS code.

What is an HS code?

“HS” stands for Harmonized System which in turn is short for the Harmonized Commodity and Coding System.

It is a system for the classification of goods used by more than 200 countries. As a matter of fact, more than 98% of the merchandise in international trade is classified in terms of the HS.

The HS consists of more than 5,000 commodity groups.

The first six digits of the HS code are standard internationally. The digits which follow are assigned locally. For example, let’s have a look at a straightforward classification – the classification of a petrol-driven passenger motor vehicle of a cylinder capacity not exceeding 3000 cc.

 

The tariff structure is as follows: 

Chapter 87 Vehicles (Excluding railway or tramway rolling-stock), and parts and Accessories thereof.

87.03 Motor cars and other motor vehicles principally designed for the transport of persons (excluding those of heading 87.02), including station wagons and racing cars:

8703.2 – Other vehicles, with only spark-ignition internal combustion piston engine:

8703.23 – Of a cylinder capacity exceeding 1 500 cm³ but not exceeding 3 000 cm³:

8703.24.90 – Other

Not all classifications are as easy as this. Due to the ever-changing technical nature of products and the introduction of products into the market which never existed before, it is critically important that the accurate tariff classification is affected. If not, an under entry in the payment of customs duties and VAT could result. SARS is entitled to claim back all under entries in duties and VAT for the preceding two years, including penalties and interest on the underpayments. 
And on the other hand, an incorrect tariff classification could lead to excessive duties and VAT being paid, as experience by the vinyl business above. 

And here’s another true story: 

This business imported handcrafted sculptures. Because these were handmade sculptures, the importer classified the sculptures as original sculptures (duty free). Unfortunately, after importing the product for a period of more than two years, SARS conducted an audit on the importer and concluded that these were not original sculptures but should be classified according to the sculptures’ constituent material. The importer had failed to consult the Section Notes, Chapter Notes and Harmonised System Explanatory Notes. The importer could not afford to pay the hefty under entries and penalties resulting in the closure of his business and filing for bankruptcy.

On the other hand, an overpayment in customs duty could occur. For example, the importer of certain confectionary products classified certain sweets incorrectly resulting in an overpayment of duties for the previous two years in the amount of about seven million Rand. Fortunately, they were able to reclaim the overpaid duties from SARS once they had been made aware of the error.

In order to assist importers, waucustoms has developed an offering whereby we will evaluate your customs tariff classifications on a contingency basis. This evaluation will either identify areas at risk of penalties and interest being levied by SARS or identify favourable misclassifications that we will then apply for and expedite refunds due from SARS.

If you are concerned about your customs risk, contact Dale Petersen on 021 819 7802 or at dpetersen@wauko.com to find out how we can assist you. 

1 Comment

  1. LUKAS SNETLER

    Excellent!

    Reply

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