INCREASED CUSTOMS PENALTY AMOUNTS RAISE CONCERNS IN THE TRADE INDUSTRY

by Vusi Ngcobo

What’s Happening?   

It has come to our attention that SARS has increased the penalty amounts payable when in contravention of the Customs and Excise Act. 

A Customs external contravention list version 12 which came into effect on the 29th of July 2022 appears to have been “replaced” by version 13 which came into effect on 8th of August 2024. I am deliberately using the words “appears to be replaced” because our team of researchers who observe the SARS website and Customs developments like hawks have not picked up any announcement on this development. 

This development has therefore come as a surprise to all in the way it has come to the public. I got the information through a clearing agent (obviously upset) who got the message through their clearing software service provider.  

Why Does This Matter?  

The increase in customs penalty amounts affects not only clearing agents but also importers, exporters, and other businesses involved in customs operations. The concern is that many businesses, especially smaller ones, may not even be aware of the changes in customs penalty regulations. If specialists like us got to hear about this through the grapevine, you just wonder about others. 

What’s New?   

Version 12 of the contraventions list applied a minimum amount of R1500 for most customs transgressions. This amount has now been changed to R4500. There is a huge uproar amongst clearing agents because they believe that this amount will put many small and struggling clearing agents out of business especially in cases wherein SARS has incorrectly imposed penalties (which happens quiet a lot). 

Impact on Trade 

Those who are in the customs space know that when SARS concludes a prima facie case of noncompliance, the first person they go to is the clearing agent by means of a letter of intent (LOI). The clearing agent is given 7 days to convince the Commissioner that the Commissioner may have gotten it wrong.  

For one to convince the Commissioner, they need to have a good understanding of the charges against them and a good understanding of the law and present good grounds of evidence to buff the allegations off them. Unfortunately, most people whether clearing agents, importers and or exporters do not know how to write a good response to have the letter of intent withdrawn.  

Expert Help in the Field 

Those who are aware of Mageja Customs Consulting often turn to us to handle these situations. We have a high success rate (over 90%) in getting customs penalties withdrawn, primarily by identifying errors in SARS’ charges.    

Should one not succeed to convince the Commissioner to withdraw the LOI, SARS will now impose the penalty. At that stage, one has one of 2 choices. One can opt to be dealt with administratively in terms of section 91 of the Customs and Excise Act or they can be dealt with criminally. The idea of being dealt with criminally scares the hell out of anybody thus getting many people opting to be dealt with administratively. 

The Burden 

The challenge with the administrative choice is that you must deposit an amount that the Commissioner would call for in terms of section 91(1)(a)(iii). The Commissioner will not hear any appeal if the said deposit has not been made. Unfortunately, it is the clearing agent who would be expected to make that deposit because the penalty is imposed against them. It would then require the agent to negotiate with the principal for them to pay the money into their account, failing which the agent remains liable. Multiply that with the number of clients per agent and the number of alleged contraventions, the agent suddenly becomes very exposed and most small agents do not even have insurance cover against such risk. They are totally exposed. 

Industry Reaction 

From what we hear, agents feel that the decision by SARS to amend the penalty amounts upwards is very unfair and this was done with them not being consulted. People are investigating possibilities of legal action against SARS. Well, my view is that SARS uses penalties as a tool to enforce compliance. Enforcement measures are never negotiated with people against whom enforcement action would be taken. Would it not be nice if we were to be consulted and negotiate the severity of a sanction we would enjoy? Unfortunately, life does not work that way. All the versions of the contraventions list were never negotiated with any one and why should this version be negotiated? 

SARS’ Strategic Objectives 

SARS has 9 published strategic objectives. All actions and decisions made by SARS must be understood in the context of these strategic objectives. Every initiative that SARS implements, is aimed at meeting a certain strategic objective. 

Strategic objective 3 states that SARS wants to “DETECT taxpayers and traders who do not comply, making non-compliance HARD and COSTLY”. 

The revision of the penalty amounts from R1500 to R4500 is therefore to be seen in context to this strategic object and all questions will be answered. 

There is no doubt that clearing agents who remain in the middle of this, are now more exposed to financial risk than before. It is however important to point out that the increased amounts will negatively affect those clearing agents and traders who are noncompliant. For compliant agents and traders, there is nothing to worry about. 

Risk Management 

 Agents must therefore come up with mitigation for this. We propose that part of mitigation should include them calling for a deposit sufficient to cover VAT any possible penalties when clearing the cargo on their behalf. 

We have found a very important loophole when dealing with penalties issued in the BLNS ports of entry. This pothole has allowed us to win every case relating to unacquitted PPs where SARS has imposed R5000 penalties. It would be wise for agents in this predicament to talk to us. 

Let’s Talk  

At Mageja Customs Consulting, we specialize in helping businesses avoid customs penalties by staying compliant. We can assess your risk management and suggest improvements. Many smaller agents and traders don’t have a Customs Compliance Risk Management Plan, which is crucial in avoiding customs penalties.  

Clearing agents are an extension of Customs and must support compliance measures. We’ve been urging agents to review their agreements with the Commissioner to fully understand their obligations before challenging customs penalties legally.   

Mageja Customs Clearing is here to help you navigate the complexities of customs penalties and compliance. Follow us on LinkedIn and Facebook for more insights on avoiding customs penalties. 

Yours in customs compliance, 

Vusi Ngcobo.  

Director, Mageja Customs Consulting.