INTERNATIONAL TRADE: SARS' Pay-Now-Argue-Later Powers
Recent Western Cape Business News
THE Customs Control Bill circulated recently for comment introduces a stiff new penalty regime for importers and exporters who break tax laws and strengthens the SA Revenue Service’s (SARS) ‘pay-now-argue-later’ powers.
The bill provides for five categories of penalties to be imposed on taxpayers who breach the law and has changed the way disputes between SARS and taxpayers will be resolved.
“The bill contemplates allowing SARS in certain circumstances to simply issue a notice to a taxpayer alleging a breach of the law and demanding that the taxpayer pay a penalty of up to R1 million within five days of the notice being issued,” explains Werksmans Attorneys director, Alison Wood. “Taxpayers must pay this amount or face prosecution.”
While SARS does still provide for internal processes of appeal and dispute resolution, under the Customs Control Bill taxpayers can only for certain types of penalties, appeal the amount of the fine, and not the merits of their liability.
“In addition, SARS does not necessarily have to prove the offence if there is no criminal prosecution,” says Wood. “Yet the penalties can be enforced by SARS’ legislated processes to ultimately have the same effect as a judgment debt, without SARS ever having to issue summons.”
Payment of the fine in certain circumstances, guarantees that taxpayers will not be prosecuted in court. But Wood says while some companies may choose to pay the fine because they do not want to risk a prison sentence or get caught up in a lengthy, costly court battle, others will simply take their chances that SARS will not be able to prove its case.
“Criminal customs cases historically have seldom actually made it to court, so the practical effect of the penalties contained in the penalties of bill depends largely on SARS’ ability to improve its prosecution capacity,” says Wood.
The bill also seeks to give more structure and depth to SARS’ powers of seizure and confiscation of assets, again without proof of an offence. “Taxpayers now have to make a formal application to request the release of their goods,” says Wood. “Even if this process is successful, the taxpayer may still have to pay a penalty against release of the goods that can equal the value of the goods.”
The bill will affect companies involved in importing and exporting, including agents in the clearing and forwarding industry, companies involved in the manufacturing of excisbale goods such as cosmetics, alcoholic beverages, cigarettes, motor vehicles and electronic goods. While Wood says legislation and penalties relating to excise and customs tend to be more rigid than general taxes, she says a balance must be struck.
“If the bill is too draconian, it could have the effect of crippling some import and export businesses or getting them tied up in court for years,” she comments.
The bill forms part of a new legislative framework that seeks to modernise South Africa’s customs control in line with international trends and best practices. The former Customs and Excise Act will be replaced by three separate pieces of legislation: a Control (administration) Act; a Customs Act; and an Excise Act.
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. 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.
Wood says much of the content of the Customs Control Bill involves re-wording or formalising the law or practice already in place and there are a number of provisions which will result in improvements in the way customs authorities interact with the public. “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,” she says.
But she points out that there is a lack of clarity of how the new bill will be read with the recently promulgated Tax Administration Bill.
“It is possible that a taxpayer contravening the VAT Act and the Tax Administration Bill could also separately contravene the Customs Control Bill,” says Wood. “Ultimately, he or she may attract penalties under both legislation and the way that disputes between SARS and taxpayers will be resolved needs to be considered in the context of the wider legal framework governing administrative justice and the constitutional rights of the taxpayer.”
She says the Customs Control Bill confuses matters further by seeking to specifically incorporate relevant provisions of the Tax Administration Act in some chapters, such as those relating to mechanisms for recovering debt.
Wood concludes: “It’s clear the intention of the Customs Control Bill is to more vigorously prosecute those taxpayers who breach the law, but this needs to be fairly balanced with taxpayers’ constitutional rights to fair administrative process including their right to be heard.”
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