Whether you are an importer or exporter, or a local manufacturer, have you ever pondered how one, or maybe even a few, of your competitors have been more competitive than you when their goods have been subject to customs duties, including excise duties? You might well have questioned the tariff classification of their goods and possibly even the legitimacy of the classification.

Regarding the latter question, there is a natural human tendency to question tariff classifications, particulary because the South African Revenue Service (Sars) currently does not publish tariff determinations. This lack of transparency tends to be fertile breeding ground for rumour and distrust. Speaking of distrust, it reminds me of a general store in my grandfather’s old village, which had a prominent notice displayed behind the cashier’s counter which read: ‘In God we trust, everyone else pays cash’.

With the tariff determinations not being published, an industry whose sole purpose is to conduct customs audits on a ‘no realised saving, no fee’ basis has arisen. Its general model is quite simple: the audit of customs entries for a given period of time would be undertaken by a consultant, during which potential tariff ‘misclassifications’ or ‘non- preferential’ tariffs would be identified. The customs entries would then be amended and submitted to Sars. Upon its review and the subsequent receipt of the Sars customs duty refund, the consultants would receive their fee, based on an agreed percentage.

Interestingly, this is marketed as a form of savings. This prompts the question of whether this really is a saving. At face value, it could be argued that it is money returned, so a resounding ‘yes, it is’. Really? Have you ever heard of the cost of capital? Then, too, there is the consideration that the full amount recovered would not be returned to the importer. The ‘recovery fee’ is usually a percentage that could range from 25% to 35%, maybe even higher, while the cost of capital relates to the capital being used, unproductively, to pay for customs duties, rather than being employed to generate revenue. So, it is not really a saving.

Other than performing a ‘blind’ customs audit, it is also possible that unpublished tariff determinations could be uncovered, which could result in an application for a favourable customs ruling being made in the name of another importer. It could be argued that unpublished customs determinations could make for an advantageous currency. Consequently, unpublished tariff determinations tend to be highly guarded, particularly if they provide a favourable customs duty rate.

Over the years, there has been a lobby for tariff determinations to be published in order to increase transparency and ‘level the playing field’. In case you were wondering, there are international precedents, the most notable being the US Customs Border Protection (CBP) through that country’s Customs Rulings Online Search System, commonly known as CROSS. This is a comprehensive repository of tariff determinations that provides the CBP’s summary reasoning and handy cross-references.

Should you have been wondering when, if ever, Sars would follow suit, you might be pleased with the announcement made on June 24. On that day, the revenue service unveiled its Tariff Determination Enhancement (TDE) Project, which includes the publication of tariff determinations.

The TDE Project is divided into two phases. The first phase will focus on online processing, issuing and publication of new applications by relevant internal users. The publication will exclude old cases that were finalised before the implementation of the system in May this year. (There will thus still be a competitive advantage where unpublished tariff classifications exist.) The second phase, allowing for traders to submit electronic applications, is expected to follow “around” September 2024.

Should you be interested, an abridged version of the finalised tariff determinations can be viewed on the Sars portal from July 1, and will be accessible at: https://tdn.sars.gov.za/portal/.

If you want to learn more about tariff classification, then visit: https://www.sars.gov.za/wp-content/uploads/Ops/Policies/SC-CR-A-09-Tariff-Classification-External-Policy.pdf.

While you are waiting for the Sars’ Tariff Determination System to become fully operational, you might well want to spend time looking at CROSS and reconsider your tariff classifications.