Archives For Customs Union

Namibia-coat-of-armsA financial analyst has expressed concern about Namibia’s reliance on revenue from the Southern Africa Customs Union (SACU), saying the government needs to diversify its source of revenue.

James Cumming, Head of Research at Simonis Storm Securities told a Namibia Chamber of Commerce and Industry post budget meeting that he is concerned about over reliance of budget revenue from the SACU pool, saying 35% to 40% of tax revenue is from the SACU.

He explained that government needs to diversify its revenue sources as future adjustments to the SACU revenue formula could lead to lower revenue from this agreement.

The Minister of Finance, Saara Kuugongelwa-Amadhila, told the meeting that sources of revenue have been increasing and are expected to grow over the next three years. She said new sources of revenue have been identified with preliminary studies already underway in order to secure a consistent revenue stream in the future.

Leonard Kamwi, head of advocacy and research at the Chamber, said he was disappointed that previous budgets had failed to reconcile expenditure on education with the resulting output, which has been below par. He said it is not enough for the government to target sectors in their wholesome but rather target the prospective beneficiaries. “The budget should target specific necessary skill sets as opposed to the whole sector,” said Kamwi.

Kuugongelwa-Amadhila defended the proposed export tax on natural resources, indicating it was meant to minimise the disparities that arise from the exploitation of Namibia’s naturally endowed resources. Source: The Namibian

Dr Richard Sezibera meets His Highness the Agha Khan at the EAC Headquarters in Arusha. (Sunday Times Rwanda)

Dr Richard Sezibera meets His Highness the Agha Khan at the EAC Headquarters in Arusha. (Sunday Times Rwanda)

Overlapping membership in several trade areas is impeding “free circulation of goods” within the East African Community-members states, a regional integration and trade expert has said.

Alfred Ombudo K’Ombudo, the Coordinator of the EAC Common Market Scorecard team, has told The News Times that belonging to other trade blocs outside the EAC makes members reluctant to remove internal borders to allow goods to move more freely.

According to K’Ombudo, a Common External Tariff (CET) is critical to ensure free circulation of goods through the application of equal customs duties. The EAC Customs Union protocol has a three-band structure of 0 per cent duty on raw materials, 10 per cent on intermediate goods and 25 per cent on for finished goods.

However, of the five partner states, Tanzania is a member of the SADC and subscribes to a different structure while Burundi, Kenya, Rwanda, and Uganda, are members of the Common Market for Eastern and Southern Africa (Comesa). On the other hand, Burundi belongs to the Economic Community of Central African States (ECCAS).

This, according to the expert is “perforation of the bloc’s CET,” drilling a hole in the regions tariff structure as member- states trade with other countries below the agreed tariffs.

“This makes EAC countries less willing to remove internal borders because they are not sure whether goods may have come from other blocs. This is a serious structural problem that is difficult to solve because the customs union legally recognises other blocs that members belong to,” K’Ombudo noted.

Burundi, Kenya, Rwanda and Uganda’s participation in Comesa and Tanzania’s membership to SADC is recognised by the EAC, but no exception is granted to Burundi for participating in the ECCAS.

Article 37 of the bloc’s Customs Union Protocol recognises other free trade obligations of partner states but it requires them to formulate a mechanism to guide relationships between the protocol and other free trade arrangements.

EAC Secretary General, Richard Sezibera, told The New Times during the launch of the Scorecard in Arusha, that there have been efforts to address the issue of overlapping membership.

“They [EAC leaders] have done two things to [try] addressing it: One is to harmonize the CET of the EAC and that of COMESA. This makes it easier for COMESA states to reduce the level of perforation,” he explained.

He added that in 2008, the heads of state decided to negotiate a free trade area between the EAC, COMESA and SADC as another way of fixing the problem.

Dr Catherine Masinde, the Head of Investment Climate, East and southern Africa at the International Finance Corporation (IFC), said: “If we were not to perforate the EAC would end up with a bigger volume of trade figures”.

She noted that since the launch of the EAC Customs Union, in 2005, the region has witnessed strong growth in intra-regional trade, rising from $1.6 billion to $3.8 billion between 2006 and 2010. Intra-EAC trade to total EAC trade grew from 7.5 per cent in 2005 to 11.5 per cent in 2011.

“This is significant growth but, I am told that this is, in fact, a drop in the ocean. That it is far from the potential of the market. I was given a figure, that $22.7 billion [in inter-regional trade] was actually lost to other regional blocs, from this region, [between 2005 and 2012] because of non-compliance with the common market protocol.” The Scorecard, Masinde hopes, will solve various EAC compliance issues as well as energize reforms to spur the bloc’s development. Source: The Sunday Times (Rwanda)

East%20Africa%20mapIn the spirit of stronger East African integration, the revenue authorities of Kenya, Uganda and Rwanda have started preparations for the implementation of a Single Customs Territory. The Commissioners’ General of the three East African countries deliberated on the mechanisms to operationalize the decisions of the heads of state who have continuously called for its fast tracking.

On June 25, 2013 at the Entebbe State House in Uganda, a Tripartite Summit involving the three heads of state issued a joint communiqué directing among other things the collection of customs duties by Uganda and Rwanda before goods are released from Mombasa. The leaders also agreed that traders with goods destined for warehousing should continue executing the general bond security.

During the meeting, the Commissioners’ General of the three countries put in place joint technical committees on ICT, Business Process, enforcement, change management, legal and human resource to discuss the implementation road map.

In a statement signed by the three Commissioners’ General, they said that the development of a Single Customs Territory will positively impact on the trading activities of the three countries as it will ensure that assessment and collection of taxes is done at the country of destination before cargo moves out of the port.

“As a result, the East African Community Customs Union will join the ranks of other Customs Union such as South African Customs Union and the European Union among others. Under this arrangement, restrictive regulations are eliminated as the corridor is now considered for customs purposes. For clarity, circulation of goods will happen with no or minimal border controls,” reads the statement in part.

Kenya said it would cut red tape holding up millions of dollars of imports into its landlocked neighbours Rwanda and Uganda, by letting the countries collect customs on goods as they arrive in its port at Mombasa. Goods can currently face long delays as agents process the paperwork to release cargoes from warehouses at east Africa’s biggest port, and later make separate arrangements to pay import duties at Kenya’s borders with Uganda and Rwanda.

Officials said the new system, due to be introduced in August, would clear inefficiencies and blockages seen as a major barrier to trade in the region. But clearing agents in Kenya said it could also cost thousands of jobs in warehouses, freight firms and almost 700 clearing and forwarding companies operating in the country.

Kenya, Uganda and Rwanda, together with Burundi and Tanzania, are members of the regional East African Community trade bloc, with a joint gross domestic product of $85 billion.

Kenyan tax officials said the new system would allow a “seamless flow of goods” and make it easier to stop goods getting through the system without customs payments. “Once cleared at the port, there will be no stoppages at borders and checkpoints along the corridor,” the Kenya Revenue Authority’s commissioner of customs, Beatrice Memo, told a news conference.

Under the system, Rwandan and Ugandan clearing agents and customs officials would be able to set up their own offices to clear cargo and collect taxes directly at the port. The Kenya International Freight and Warehousing Association said that meant up to half a million jobs could be lost to Uganda and Rwanda. “The Government has not consulted us … and we totally reject it,” said  Association chairman Boaz Makomere. Sources: East African Business Week (Kenya) & The New Vision (Uganda).

The following article featured in The New Times (Rwanda) provides a snap shot of developments towards a future “Customs Union” in East Africa. While valid concerns are being expressed by traders, how close are the respective Customs administrations in terms of common standards (tariff, regimes, etc), and the application of common external border procedures? The rest of Africa should follow this process closely. Unlike the EU, where it is incumbent of prospective Customs Union members to first attain and implement minimum customs standards prior to accession, here you have a pot-pourri of member states who apply national measures aspiring to an ultimate regional standard. Who determines this standard? Who is going to maintain ‘watch’ over the common implementation of such standards? Forgive the long article – this is a very significant development for the African continent.

0c8d8_logo_of_east_african_community_eac_-63ae9With the East Africa Community integration process gaining pace rapidly, clearing and forwarding agents have been advised to set up shop at entry ports under the proposed single customs territory.

Angelo Musinguzi, the KPMG tax manager, who is representing traders on the team of experts negotiating the establishment of the single customs territory, challenged the agents to look at the opportunities that the policy brings instead of focusing on how it will harm their businesses. “You need to look at this as an opportunity for business expansion because this policy will remove trade tariff barriers, duplication of time-consuming and costly processes and corruption. This will improve efficiency and reduce the cost of doing business,” he said.

The advice follows a deal reached by Uganda, Kenya and Rwanda where top customs officials from landlocked Rwanda and Uganda will be stationed at Mombasa port to ensure quick clearing of goods and curb dumping of cheap products in the region. Under the deal, Kenya will create space for its partners to set up customs clearing units.

Rwanda was given the task of establishing the single customs territory at the recently-concluded meeting between Presidents Paul Kagame of Rwanda, Uhuru Kenyatta of Kenya and Uganda’s Yoweri Museveni held in Entebbe, Uganda. However, local clearing and forwarding agents as well as traders are skeptical about the deal and want the process delayed until Rwandan businesses are supported to become more competitive.

“There are issues we still have to examine critically before the policy is implemented. For example, who will collect revenue and how will it be collected? How will Rwanda share the revenue? Will we have a common legal framework? Will we share Kenya’s or Tanzania’s infrastructure?

Fred Seka, the Association of Freight Forwarders and Clearing Agents of Rwanda president, noted that the move could affect them negatively if it is not studied carefully. “We have already raised the matter with the Minister of Trade. Besides hurting small firms, the country will lose jobs when companies relocate to Mombasa or Dar es Salaam. That is a big concern for us,” Seka said.

He noted that some of the partner states have many trade laws that might affect their operations. “It would be better if a locally-licensed company is not subjected to any other conditions once it relocates to Mombasa,” Seka noted.

Mark Priestley, the TradeMark East Africa country director, said the research firm and other players were currently conducting studies on how the single customs territory can operate without harming any player. “The intention is not only to ensure that we get rid of barriers which have been hampering trade, but also reduce the cost of doing business within the region,” he said. He added, however, that it was too early for traders to be scared of the consequences of operating under the single customs territory.

Last year the Permanent Secretary in the EAC Ministry, stated that the model which will involve shifting customs operations from Rwanda to the ports of Mombasa, and Dar es Salaam, will lead to unemployment, revenue loss and adverse multiplier effects. According to the model, certificates of origin of goods would be scrapped, which, according to Kayonga, would lead to the suffocation of local industries as well as making the region a dumping ground for unnecessary products.

Scovia Mutabingwa, the Aim Logistics East Africa managing director, said there was need for more consultations on the operation of the single customs territory “to understand how it will work”. “We need to know where our bargaining power is in the region?” Mutabingwa said. She noted that there was a need to first harmonise other trade policies if the single customs territory is to benefit all businesses in the region. She pointed out that she had applied for a clearing and forwarding licence in Tanzania over one and half years ago, but she was yet to get it. “How shall we work in such countries?” she wondered.

Another clearing firm, urged those negotiating the deal to ensure uniformity in tax policies across the region. “In Rwanda, there is 100 per cent tax compliancy, but we know this is not the same in other countries. How will we compete favourably if such issues are not addressed?” she wondered.

While one needs at least $300,000 to open a business in Kenya or they have to give a stake in their company to a resident, non-Kenyan companies also pay higher taxes at 35 per cent corporate tax compared to 30 per cent for locals.

Tanzania still has over 63 trade laws, and to operate a clearing firm there you need to be a Tanzanian, according to Musinguzi.

The East African Community (EAC) Customs Union Protocol came into effect in July 2009 after it was ratified by Kenya, Tanzania and Uganda in 2004 and later by Rwanda and Burundi in 2008. The creation of the EAC customs union was the first stage of the four step EAC regional integration process.

When fully implemented, the customs union will consolidate the East Africa Community into a single trading bloc with uniform policies, resulting in a larger economy. By working together to actualise the customs union, partner states will deepen EAC co-operation, allowing their citizens to reap the benefits of accelerated economic growth and social development.

However, the customs union is not yet fully implemented because there is a significant level of exclusions to the common external tariff and tariff-free movement of goods and services.

500px-Emblem_of_the_African_Union_svgThe African Union (AU) Technical Working Group on Interconnectivity has developed a ‘draft’ Strategy and Roadmap for Customs-2-Customs IT Connectivity on the continent. This strategy will effectively guide the process of the continental Interconnectivity of Computerized Customs Clearance and Information Systems in Africa. The ‘draft’ Roadmap envisages that the process of interconnectivity will take a period of 11 years with a total of four stages.

Stage 1 – by 2014, National states should have engaged one another (within their respective regions) on the matter of Customs connectivity.

Stage 2 – between 2013 and 2017, the AU has an extremely ambitious expectation that national Customs Administrations would have (at least commenced) if not completed Customs ‘connectivity’ within the various Regional Economic Communities (RECs) in Africa.

Stage 3 – between 2017 and 2020, the suggestion that Customs interconnectivity will be occurring between RECs across the African continent – North Africa: AMU; West Africa: ECOWAS and UEMOA; Central Africa: ECCAS and CEMAC; East Africa: COMESA, EAC, IGAD; and South Africa: SADC and SACU.

Stage 4 – between 2020 and 2025, consolidation of Customs IT-Connectivity across the RECs.

The ‘draft’ Strategy spells out the strategic objectives and activities at the national, regional and continental level that will need to be taken for this to be realized. The strategy also indicates the roles of all the major stake holders in the process.  This comes in the wake of several regional and bi-lateral initiatives to bridge the ‘cross-border divide’ through electronic exchange of structured customs information.

All in all an ambitious plan structured to meet the equally ambitious deadlines of the coming into being of an African Union. The real challenge in all of this lies with the Member States in being able to set aside and commit to regional and continental ambitions, over and above the already pressing and complex national agenda’s of their respective sovereign countries. In context of the African Union, the multiplicity of RECs in themselves add a layer of duplication…..is an “integrated Customs Union” in Africa going to continue to permit the existence of the respective RECs or will they be absorbed into the African Union? Member states need to begin speaking up on this issue otherwise accept being swamped by onerous commitments. No doubt the ‘international donor agencies’ wait eagerly in the wings to capitalise on Africa’s deficiencies.

Saturday 11 February 2012 sees the implementation of new modernised customs procedures and formalities at South Africa’s first SACU land frontier office – Kopfontein – border between South Africa and Botswana.  While enhancements are slanted more in terms of internal SARS customs procedure, SACU traders will no doubt experience some anxiety with the transition. For the first time SARS Customs Modernisation impacts directly on traders and neighbouring Botswana Customs operational procedures in a significant way, which will fashion operations at all remaining inland border posts of the Customs Union. Over the last few months SARS has worked with trade, the Botswana customs authority as well as the business chamber in Botswana concerning the intended changes and their impact on stakeholders. The implementation ushers in cross-cutting changes for customs staff operationally, new technology as well as legal and policy changes. In the case of the latter, a further element of the draft Customs Control Bill is introduced whereby foreign business operators (importers, exporters and road carriers) must be registered with SARS to perform customs transactions in South Africa. This is perhaps the single issue which has had ramifications for parties who regularly cross the border between Botswana and South Africa. Hopefully recent iterations of notices and explanations have helped clarify the SARS requirements. (See the SARS Customs Modernisation webpage).

Other modifications and changes include –

Elimination of paper clearance documents – this is a significant departure from traditional SACU processing where all member countries have relied on the Single Administrative Document (SAD) to facilitate intra-SACU clearance. With the bulk of clearances expected to be electronic, SARS will now only print a customs notification (CN1) which will specify the status and outcome for each clearance. This the trader will use in support of customs clearance in Botswana. SARS will therefore no longer stamp and authorise hardcopy SAD500 clearance documents. Of course, there is nothing which stops a trader printing the SAD500 for cross border purposes, only SARS will no longer attest these. As concerns SARS VAT requirements, arrangements will be made for traders to submit the CN1 for purposes of VAT returns. Details on this to follow.

Electronic supporting documents – already tried and tested at sea and airports across South Africa, traders no longer need to carry on their person hard copy clearance supporting documentation , i.e. invoices, worksheets and packing lists. These are only required should SARS indicate via electronic message that a consignment requires further scrutiny. Customs brokers and traders using EDI will in most cases have the SARS e@syScan facility available on their computer systems which makes it relatively simple and easy to scan, package and submit to SARS. In the event a trader cannot perform this electronically, he may approach any of the 4 Customs Hubs (Alberton, Cape Town, Durban, and Doringkloof) across the country, to have these scanned and uploaded by SARS. Alternatively, these can of course be delivered to the border post for manual processing and finalisation of a customs intervention. Supporting documents are linked to a unique case number which SARS notifies to the trader in the event of a risk.

Clearance processing – SARS has centralised its backend processing of clearances where goods declarations are now processed off-site at one of the 4 Hubs. No longer are clearances processed at customs branch office. All goods declarations – whether electronically submitted or manually captured – are routed to a central pool for validation, verification and assessment if flagged by the risk engine. In the case of land borders all clearances once successfully processed will receive a ‘Proceed-to-border’ message implying that the road carrier may commence delivery to the border. A key feature of the new clearance process is the availability of Customs Status Codes. These codes are initiated by the customs system at specified points in the process to alert the declarant of the status of his/her transaction. These status’s also indicate the follow-up required of the declarant to bring the transaction to a state of finality.

Automated Cargo Management (ACM) – All road carriers are now required to submit their road manifests electronically, via EDI, to the Customs ACM system. For now, SARS will not electronically match the manifest against the declaration, but will monitor compliance and data quality of electronic manifest  for a period of time before initiating real-time matching and acquittal. This will invoke a significant responsibility on both trader and road remover to ensure that they both provide credible data to customs otherwise delays will occur. Upon arrival of the cargo at the border, the driver presents a printout of his electronic manifest. The manifest number is ‘checked in’ by a customs official which in seconds brings up all associated goods declarations linked to the manifest number on the system. The customs officer is able to determine the overall risk status of the vehicle. Where no risks are present a status notification (CN1) is printed for each goods declaration, and a gate pass (CN2) is handed to the driver permitting him to exit the customs controlled area. The future real-time matching will comprise a combined risk assessment of both manifest and declaration information that will result in a single risk outcome. Such risk assessment will include both fiscal and security compliance features thereby bringing SARS in line with international supply chain security standards. Going forward, risk assessment will accommodate ‘all-of-government’ requirements ensuring that all regulatory measures and associated risks are administered in a single instance obviating the need for successive, time-consuming inspections and costly delays.

Automated Customs Inspection – Following its recent introduction at the Beit Bridge border post, the new hand-held inspection tool, conveniently developed on an iPod, allows the customs border control official to electronically access, capture and upload an inspection outcome to the central customs system. This significantly improves the efficiency for this time-intensive activity where the officer can initiate a status up date electronically at the inspection site, where previously the declarant would have to wait for the outcome of the manual inspection report and release note. What’s more, the customs officer has access to the underlying clearance data and can even activate the camera function and capture visuals of suspect cargo which can be appended to an inspection case for verification by higher authority or historical reference value.

There are additional features and functionality to be introduced at Kopfontein and all remaining border posts over the next few months. These relate to improved revenue accounting, new trader registration and licensing system offering online application and approval, and a new traveller and temporary import/export processing. More about this in a future post.  For traders, the benefits of the new solution at SACU land borders aim to remove random and unwarranted intervention by customs. All activities are risk driven via a secure ‘get next’ selection function ensuring that internal integrity is maintained and only ‘risk-related’ consignments/transactions are dealt with. Please visit the SARS Modernisation webpage for all the latest updates and notices on modernisation releases.

Recent reports from Europe suggest all is not entirely well with the ‘customs union’ concept. Let’s face it the philosophy of such economic arrangements has existed for many years. However, human nature and the failure of politicians to learn from history prevail.

On the one hand we have Russia, Belarus, and Kazakhstan entering a new customs union on 1 July 2011. At the same time, Russian Customs will become responsible for transport, sanitary, veterinary, quarantine and phytosanitary control. The impact of this change foresees the displacement of national border controls to the outer borders of the new Customs Union. 35 customs checkpoints and approximately 3,500 customs officers will be made redundant following the implementation of the Customs Union. To take control of the additional functions (transport, sanitary, veterinary, quarantine and phytosanitary control) Customs will need to recruit over 1,000 new specialists. Customs will try to close the gap by a short-term redeploying of personnel, but in the future expects to employ some specialists previously made redundant in other governmental agencies responsible for transport, sanitary affairs. This sounds a bit ludicrous given that 3,500 customs officers are about to be turfed into economic oblivion – truly, the interests of customs staff are not very high on this agenda!

Denmark border crossingElsewhere, tension is developing between Denmark and Germany in a dispute over the Danish government‘s plans to re-establish permanent border controls – this in the EU. Some commentators have even gone so far to state that this could be the writing on the wall for freedom in Europe. The agreement guarantees the free movement of people between the 26 European member states. Denmark insists that the sole aim of the new border controls was “to fight the entry of illegal goods and drugs” into the country.

So, is the dream of a united Europe showing signs of cracks? It seems that the scourge of illegal goods and trafficking have placed some strain on the trust between these two nations. How long before it spreads to other states? At home, here in Southern Africa, there have been several reports of tension between the Republic and the BLNS states. Although the basis for this lies more in the distribution of the common revenue pool, it is no secret that the Southern African Customs Union (SACU) and its porous inland borders offers little support for maintaining the union. With the new Customs Control Bill emphasizing the movement of goods within the union as ‘imports’ and ‘exports’, it would indeed seem a matter of time before full customs controls are reinstated at the national borders rather than current VAT controls.