SARS on the warpath!

The South African Revenue Service (SARS) is ramping up demands against road hauliers and warehouse operators, reveals MALCOLM HARTWELL.

Over the last few years, we have seen a sharp rise in the number of demands being made by SARS against warehouse operators, forwarders, and their sub-contracted road hauliers for payment of duty and VAT on cargo stolen in South Africa. This has been coupled with a declining capacity at SARS, which has seen almost every internal appeal and internal mediation finding those parties liable for duty and VAT. As a result, any party and their agents involved in the receipt, storage, forwarding, and transport of cargo in South Africa needs to ensure that they have appropriate risk management and insurance policies in place to cover potentially massive liabilities.

In the last several months alone, we have acted for clients facing significant demands from SARS for payment of duty, VAT, levies, and penalties on imported goods in the following circumstances:

• A freight forwarder for a container of tobacco hijacked in South Africa
• A container depot for five containers stolen by a syndicate, emptied and the empties returned
• A bonded road haulier for initially reflecting and then correcting the incorrect permit number on exported alcohol
• Several members of a turnkey solar plant consortium for misinterpreting a tariff heading

The Customs & Excise Act 91 of 1964 and the VAT Act are extremely complicated pieces of legislation that have undergone annual changes ever since their introduction. The entire Customs & Excise regime was supposed to have been overhauled a few years ago, but that project has stalled. The current import regime provides, as is expected, that duty, VAT, and levies must be paid on all goods imported into South Africa. Typically, this means that the purchaser of imported goods would pay the amounts due to SARS and take delivery of their cargo. In certain cases, however, goods can be discharged and transported to storage facilities in bond, where they may remain for a long time due to the owner being unable to pay or changes to market conditions. Goods may also be stored and transported by a road haulier in bond to neighbouring countries. In addition, some goods may be seized by SARS due to deliberate or accidental misdeclaration by importers seeking to avoid paying duty, VAT, and levies.

In many circumstances, the actual owner of the cargo disappears or is resident outside of South Africa and SARS cannot or does not want to proceed against them. The legislation unfortunately provides that liability for payment of duty, VAT, and levies lies not only on the importer/owner of the cargo, but on all the parties in the logistics chain, including the shipping line, storage operator, forwarder, road haulier, and/or their agents. That liability remains in place until the amounts have been paid or proof of export to neighbouring countries has been provided. This liability usually attaches during the period the party is in possession of the cargo when it is stolen or hijacked. SARS does not have to prove any fault on the part of the road haulier or storage operator to recover the monies. We have, however, managed to persuade SARS to waive the usual 100% penalty on unpaid duty and VAT where our client had nothing to do with the theft or hijacking.

In theory, the person paying the duty and VAT (such as the road haulier) can recover it from the party at fault and the owner of the cargo, but in reality that right is of no assistance, as these criminals have no fixed assets.

Parties involved in the logistics chain who clear, store, forward, or transport bonded goods should ensure that they have appropriate contracts in place asking them to provide services such as the shipping line or logistics company. They should also ensure that they have secured sufficient liability insurance to cover their potential liability. This may run to several million Rand per 20-ft container. To ensure there is sufficient insurance, an audit should be carried out on the maximum and average values of all cargoes handled by the road haulier or storage depot. When new business is attracted, a valuation needs to be undertaken of the client’s cargo. To avoid penalties, parties in the logistics chain should also ensure that they have appropriate security, monitoring, and documentary procedures in place to persuade SARS that – if the container was hijacked from them or stolen from their premises – they had taken reasonable precautions to ensure this would not happen.

Storage operators must additionally ensure that SARS sells any seized containers as soon as possible, because their practice in this regard has slipped considerably over the last few years, with some containers having been seized for misdeclaration lying in bonded facilities for years before being sold.