With the economic landscape worsening, unscrupulous traders are resorting to unsavoury means to remain competitive, even going so far as ‘crooking the books,’ to avoid paying import duties and levies on tyre consignments. This poses a serious threat to credible South African businesses that are operating legitimately. What, if anything, can be done to combat the practice of illicit trading? SA TREADS investigate.
We are led to believe that a growing number of importers of tyres are attempting to disguise their consignments by clearing under other non-tyre related codes in order to avoid paying the correct import duties and waste tyre levies of R2.3/kg. This, of course, hands them an unfair advantage, particularly as legitimate importers clearing goods under the correct tariff codes (specifically for tyres), are apart from paying the prescribed duties and levies also being subjected to reference pricing.
Bear in mind, these dubious practices not only affect the legitimate importer, they are equally detrimental to our four local manufacturers who rely on sizeable volumes of imported product to supplement their offering to market.
Reference Pricing – an initiative (Tripartite agreement) between Government, Labour and Local Industry – came about some years ago. As TIASA did not exist back then, SARS could only consult with local industry on the matter, and so the SATMC was asked to come up with a formula, for the lack of a better word, to calculate a reference price per tyre size.
Simply put, a formula was agreed upon by local manufacturers as to what the breakdown of raw materials would be for a tyre, i.e. x% natural rubber, x% synthetic rubber, x% chemicals, x% conversion cost and so on, with the prices of raw materials updated on a quarterly basis, using international raw material prices and thereby setting the $ price/kg. The $ price/kg was then used to determine the reference pricing for a specific size by multiplying it with a specific weight for a size. Among other risk factors, this reference price, is being used to trigger stops by SARS.
In a bid to clamp down on import duty evaders, SARS are performing random checks at major ports, stopping any consignments deemed suspicious. While their efforts to halt illegal consignments is welcomed by industry at large, it appears disputes are creeping in when it comes to the implementation and lookup of the reference pricing by Customs Officials, with the formula not being implemented correctly.
It has come to light that in some cases, light truck tyres are being confused for implement tyres or vice versa, resulting in unnecessary stops and expenses to the importer.
The Reference Pricing Formula, as such, is not the problem, says TIASA, but rather, the incorrect manner in which this being implemented by customs officials. TIASA argues the lookup table is not being applied correctly. They suspect that the reason behind this could be a lack of basic knowledge on the part of officials who frequently do not know the difference between a passenger tyre and a light truck tyre, for instance.
According to a recent SARS report, from the period 1 April to 31 December 2019, R93 million worth of consignment was stopped, resulting in losses to the tune of R4 million to the industry, (this equates to approximately R20 000 per container). No additional revenue was raised due to this.
To the contrary, the duty value was reduced by R -36 258 to R93 007 598, resulting in the duty collected reducing by a staggering R -312 268.67 after the correction was made. The stoppages were attributed to a number of factors, including importer behaviour, (continuously changing Period 1 April to 31 December 2019, R93 million worth of consignment was stopped, resulting in losses to the tune of R4 million to the industry TIASA clearing agents or being assigned a negative risk rating by SARS), products not being homologated as per NRCS regulations, border police suspecting possible smuggling and, of course, consignments being perceived to be in violation of the current reference pricing model.
Because of this, according to TIASA, the current reference pricing risk tool is not having the desired effect to reduce, illicit trade. As such, industry is asking for urgent consideration to be brought to the matter, in order to in order to explore more effective risk tools and remedies that can possibly be implemented by SARS in a bid to reduce illicit trade.
Subsequently, SARS has sent out an email asking both associations (TIASA and the SATMC), to provide input on the breakdown of raw material for tyres. The purpose of this is twofold. First, to provide a platform for industry to converge to discuss the best methods for resolution and second, to allow industry and SARS to engage with the intention to equip SARS in its efforts to implement and enhance the reference price method.
In addition, we are told that TIASA is in the process of exploring other risk remedies which they hope to table for discussion at their next meeting, to ensure that they do not rely on what they perceive to be an ineffective risk engine currently being used. We are told this will be an ongoing process that will involve the establishment of The Illicit Trade Forum’ in the interests of arriving at more effective risk remedies.
The SATMC were invited to participate in this story. Regrettably, no comment was received.
