TRADE: Far Reaching Efforts To Curb Duty Avoidance
Recent Western Cape Business News
In its efforts to apprehend importers avoiding duties SARS is about to introduce new legislation that casts the tax net so wide that it will impact the business practices of honest businessmen.
Section 29 of the Taxation Laws Second Amendment Bill, which is to be inserted into the Customs & Excise Act 94 of 1964 this month (September), rings a loud warning bell for importers, says Quintus van der Merwe a partner in Shepstone & Wylie Attorneys International Transport, Trade and Energy Department.
The proposed amendment, which probably finds its origin in the now revoked section 103(1) of the Income Tax Act, allows the Commissioner to rule, on reasonable grounds, that any scheme entered into or carried out that effectively avoids liability for duty, or reduces the amount of duty payable, be disregarded, and the Commissioner to determine liability as if such a scheme did not exist.
The proposed amendment casts the net as widely as possible in its interpretation of a "scheme" and, more seriously, when Customs question whether a scheme exists or not, it has the power to presume, in the absence of evidence to the contrary that raises a reasonable doubt, that the scheme was entered into to avoid such duty. In other words, the person against whom a ruling is made bears the onus of proving that the goods were not being entered under a "scheme".
“This proposed amendment is in our view problematic. While the intention is to catch those who try to classify goods improperly, it has several major drawbacks that could create havoc and unwarranted delays,” says van der Merwe.
The continual questioning of whether or not goods are being entered under a scheme will cause substantial delays with importers having to try and prove the contrary. In the interim importers will be burdened with the costs of detention, demurrage, storage and the like, not to mention the possibility of complications if the goods were to have been delivered to a customer on a specified date or time.
It is likely to give rise to a plethora of litigation which will be costly for the importers and the revenue authorities.
As the new regulation creates a reverse onus the importer may notionally be faced with criminal prosecution and hence the constitutionality of this reverse onus must be questioned, says Van Der Merwe.
Further it may prove to be inconsistent with the General Rules of Interpretation for the Classification of Goods which apply in terms of the Harmonised System issued by the World Customs Organisation and as is provided for under section 47 of the Customs & Excise Act.
While one can sympathise with the revenue authorities, who are tasked with enforcing due compliance on the entry of goods, the continual legislation of regulatory provisions unnecessarily complicates matters.
“It raises the question of whether the majority of honest businessmen, who drive the economy, are being unnecessarily hamstrung by provisions designed to net those acting dishonestly, when in fact Customs has all the necessary tools in the General Rules of Interpretation, to deal with the matter if they are applied properly.
There is no doubt that the proposed amendments will create uncertainly. Many businessmen that have arranged their affairs according to perfectly acceptable business principles, including the principle that one should be allowed to arrange one's tax affairs as efficiently as possible, now face the dilemma of whether their business arrangements might be regarded as a "scheme".
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