Category / South African Customs

by Mike Poverello

Modernisation Release 2 under scrutiny

Significant changes to South African Customs internal declaration processing and inspection procedures were introduced just over two weeks ago under the banner of Release 2. From the outset it was clear that while technical developments had attained a level of stability through a substantial testing process, both internally and with external traders, the real impact would only be gauged upon implementation, or to quote a ‘sage’ in SARS – when the users begin to use the system in anger.

For traders, the biggest challenge lay in two areas: use of the new E@syScan software – a facility to scan, package and submit shipping documents to Customs – the intellectual property having been provided ‘free of charge’ to the industry’s service providers for integration in their proprietary offerings to the business community. Secondly, the operational interaction of traders with Customs branch offices in regard to the new case management and inspection system.

As was expected, there were some issues which challenged users, particularly in the area of amendment declaration processing (VOCs) and the inspection process. Tempers flared and patience was pushed to the limit. In some instances  delays resembled the kind of customs response times last seen prior to implementation of EDI in 2000. There were times too, when frustration levels so overwhelmed local customs staff, the issues spewed over to confront head office personnel.

Let’s not forget that there are no exemptions from financial loss during times like these. It’s not as though supply chain operators are going to be lenient and forgiving for shortcomings and delays in other quarters. No, these are the times of frustration and distress. On the one hand, the potential (and reality) of loss of business, and on the other, a yearning desire for better insight and judgement as to what to do when things are haywire.  At the heart of this lies the technology with it’s numerous interfaces, store and call procedures, dealing with the millions of instructions per second on which hang the expectations of all the users across the country. It matters not how much scenario testing and training occurred prior to implementation – this is the real deal.

The shortcomings of Customs have been highlighted by many, but the pandemonium and chaos at service provider call centres and indeed at clearing and forwarding houses escapes scrutiny and criticism. A finger-pointing exercise is most definitely counter-productive. What has been planned through the Modernisation Programme is indeed with the best intentions of the country in mind – of this most parties will agree. The fact that people’s comfort zones are jolted is what causes the pain.

With the logic and decision-making of customs and trade business activities becoming more and more embedded in the information systems we use, the frustration and helplessness of the user will continue until such time as these systems stabilise and the users become more trusting. The ‘challenge’ for systems builders and users lies in their ability and willingness to communicate and exchange the issues, solutions, and temporary workarounds. Clearly we have some way to go in this department. Users want systems and the convenience they bring. They are however not very forgiving when things go wrong; tolerance and understanding in short supply. Get used to this; there are at least another half-dozen forthcoming Modernisation Releases. In Part2 I’ll discuss some of the transitional pains which lie ahead. I also encourage readers to share their views on the matter – please be constructive.

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by Mike Poverello

Customs Bill makes Local Headlines

The Business Day has published an article featuring the Customs Bills. Prominent attention has been given to the question of penalties under the new dispensation. Given months of industry analysis of the Bills, I think it is a welcomed occurrence that the topic has reached the press. For the full article please click  HERE!

by Mike Poverello

Penalties for non-compliant Cargo Reporters

Recently SARS issued a communication signalling its intention to penalise non-conforming cargo reporters as of 1 July 2011, if they fail to report their cargo manifests electronically to SARS. Following international practice, all parties who engage in the contract of carriage of goods internationally are obliged to report the details of such cargoes. While customs has traditionally placed more emphasis on the correctness of the goods declaration alone – due to it being the sole means of duty and tax assessment and collection of revenue, the introduction of measures to safeguard the supply chain and combat other forms of nefarious activities, implies that all supply chain operators are ‘known’ and share in the responsibility for their actions and activities.

Perhaps seen in this guise, the whole matter of supply chain security encompassing the universal adoption of the Authorised Economic Operator (AEO) concept seems less appealing than it did a few years ago. Yes, Customs wants to know more and more about your business and who you do business with. Freight forwarders / Clearing Brokers have borne much of the brunt from customs over the years, it’s now time for parties involved in the conveyance of cargoes to come forward and be counted.

Because international shipping by its very nature transcends borders, it has always been difficult for national authorities to apply effective controls over information and parties who in all honesty are representatives/agents for those supplying the ‘original’ shipping documents. What the law now says is that those acting on behalf of foreign principles, liable for the import leg of imported goods are obligated to submit the ‘manifest information’ of those goods (electronically) to SARS.

For those customs brokers who operate as freight forwarders, this is in essence a further requirement which SARS places on your organisation. In essence a freight forwarder has a dual requirement with SARS – declaring the manifested contents of a consignment, as well as making due clearance for regulatory compliance and payment of duties. Another party with a similar dilemma are certain ‘ground handlers’, specifically those who are contractually responsible for the inbound operations of foreign air carriers, as well as the deconsolidation of aircargo upon arrival in their transit shed. They too must report the aircargo manifests electronically to SARS, and secondly to report the outturn of such goods, once unpacked for temporary storage and customs clearance and release.

The NVOCC or Vessel’s Agent must also report all cargo – for which they are contractually responsible – for the inbound leg into the Republic. These parties represent the foreign carrier and must consequentially report the carrier’s manifest (electronically) to SARS.

SARS is for now focussing principally on the reporting of master and house (sea and air)cargo manifests in this phase. Other reports are to follow.

Details for the registration for reporting electronically to SARS’ Automated Cargo Management (ACM) system have been widely distributed, and for sake of convenience are available for download here.

Consequences for non-compliance post 1 July 2011

SARS has put into place mechanisms to identify non-reporters. In such instances customs officers will call for administrative penalties to the extent of R1000,00 for each ‘manifest’ not reported. Moreover, should SARS take measures to ensure that these penalties are not ‘passed on’ to the importer – this would surely defeat the object of SARS’ intentions? Shortly, we’ll discuss the future matching of electronic cargo reports and goods declarations, but first lets endeavour to accomplish the first milestone.

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by Mike Poverello

Help with applying CPCs is here!

Apply-CPCs-betterSARS has recently produced a two-part guide to assist Customs Users in the application of Customs Procedure Codes (CPCs). This comes on the back of several enquiries concerning procedures from both the trade community and customs officers. The guides have been prepared in two parts to begin with.

Part 1 provides the user with a table of the permissible CPCs against which he/she can identify the appropriate codes that preceed that which appears in the table. For example, if you wish to clear warehoused goods, in bond, from one customs warehouse to another customs warehouse using CPC E43 42, then you must already have lodged a preceding clearance with CPC E42 00; E42 20; or E42 37. Part 2 provides the same table of CPCs, this time illustrating what CPC codes are available for use for a secondary or followup clearance. For example, , if your original or primary declaration declared goods directly into a Customs Warehouse under CPC E40 00, then your follow-up or subsequent options will be A10 40; A11 40; A13 40; A14 40; A15 40; E41 40; E43 40; F53 40; H67 40; J80 40; or K85 40.

It is important for the Customs User to understand that these are the ONLY applicable CPC combinations, and that the customs system will not permit any variations on these. Most computer service providers have likewise built-in system rules which only allow the CPC codes as permitted. It is precisely because of past mis-use of purpose codes that lead to CPCs being introduced. Users will also now notice that any CPC combination where the previous procedure code is not ’00’ must reference a previous customs declaration. This therefore provides a complete audit-trail of a transaction from point of entry/exit through to its final state, providing the trader improved evidence of his/her compliance with the law. In the coming months, my companion blog Paperless Customs Clearance will provide detailed guidance for all CPCs.

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by Mike Poverello

Modernisation Release 2 – Trader Pocket Guide

Customs Trader Pocket Guide 2nd EditionImporters, exporters, freight forwarders, specialist trader practitioners and service providers can visit the SARS Customs Modernisation webpage and download the 2nd edition of the “Trader Pocket Guide“. Traders will find other companion documents on the webpage, in particular the “Guide to SAD Forms“. This publication will help and assist the customs user to locate the appropriate block/space for required declaration data fields. In addition, the new updated “CPC Chart” and “Guide for Application of Customs Procedure Codes” are also available for download. Stakeholders are encouraged to look out for subsequent notifications which will be uploaded to the webpage as the implementation of Release 2 progresses.

by Mike Poverello

Addressing Apathetic Compliance Mentality – Part 3

In conclusion of this topic, let’s consider the importance of both cargo and goods clearance. The goods declaration attests to the admissibility of goods according to the Customs tariff, valuation, origin, and all other government regulatory requirements. The cargo declaration and associated cargo reports allow Customs to confirm that what has been cleared has in fact been physically out-turned and accounted for. Moreover, in the case of transit movements, it allows Customs to track cargo movements.

It is therefore not difficult to understand that any non-participating party will undoubtedly impact on whether or not an importer receives his/her goods timeously. It is true to state that until now, the emphasis on valid clearance and release has been placed at the doorstep of the clearing and forwarding agent – the party that presents the goods declaration to Customs. In essence this is little more than a data validation exercise. It does not in any way prove the location of the goods, and the quantities received. Neither does it prove that the correct formalities have been applied as concerns the handling and temporary storage of the goods upon arrival.

What benefit is this to the country if Customs can only satisfactorily control the goods declaration? For exports this is even more nonsensical – after clearing goods for export, how often does it happen that no physical shipment leaves the country for one or other reason; and in such instances are these transactions cancelled with Customs? True, Customs should not be a barrier to trade, but it must still account to the fiscus and trade and industry with accurate trade statistics. Therefore, Customs information requirements are crucial to much more than just the clearance of goods. The SA Reserve Bank is likewise a recipient of Customs data whereupon it monitors foreign exchange and payments.

The difference now is that SARS requires this information in advance, and electronically. To re-iterate – the first phase of ACM is to ensure the registration of all sea and air cargo reporters and the consequential compliance of the cargo data which they submit. As alluded to in Part 2, SARS will continue its liaison with the business community and will mobilise campaigns shortly to get all remaining parties registered. Supply chain security is a myth if certain operators fly under the radar. The consequence of non-participation implies that importers (and exporters) will unwittingly find themselves at the wrong end the stick once SARS commences formal manifest/declaration matching.

Should SARS penalise the importer, exporter or clearance broker, where a cargo reporter fails to submit a manifest? Certainly not, the consequential delay of the latter’s action would have already damaged the his/her reputation, if not the viability of the consignment concerned. Therefore it is important for any ‘qualifying’ cargo reporter to come forward and register. As unsettling as this may sound, it is the best way to clean up the industry and bring it in line with requirements that are ‘standard’ practice in other parts of the world.

Interested parties can open the ACM Fact File, which provides the necessary details and information for registration.  Further details will also be available on the Customs Modernisation webpage, shortly.

by Mike Poverello

Addressing Apathetic Compliance Mentality – Part 1

In 1993, I recall certain members of the shipping community admonishing the Customs and Excise department for being backward, lacking the ability to meet the demands of the community – shipping lines in particular. At the time this criticism was valid, and would have still been relevant for another 10 years – the time it took SARS to eventually implement its first manifest acquittal system (MAS).  Since the inception of MAS (2003) the interest and energy to bring about trade compliance in the submission of manifest and conveyance information has been tardy and uncoordinated from a central viewpoint. In retrospect, several reasons exist for this – erratic and unpredictable systems architecture, as well as the lack of a customs champion to drive the operational compliance initiative from a national level.

Along the way there have been various milestones which have signalled a radical re-think in the philosophy of cargo reporting. Introduction of the ISPS code and the US 24-hour advance manifest rule set the tone for world-wide ‘re-engineering’ (I prefer the word ‘reform’) of processes, information exchange and legal basis. These have continued for supply chain operators through various iterations of ‘advance reporting’ – New Zealand, Canada, China and more recently the EU’s Import Security filing have required shippers and logistics operators to re-align their business models to meet new customs reporting requirements. True, all these initiatives may have their respective national or regional flavours, yet, the Customs data requirements are principally identical.

In 2008 SARS signalled its intent to mandate the electronic submission of cargo reports, supported by legislation to give this due effect. Why electronic? Because there’s a belief that any party involved in international cargo handling, forwarding, and shipping must be computer literate in order to operate (at all) in this highly competitive business. We are not talking about once-off casual importers here, but parties who have a greater or lesser degree of business acumen, knowledge of INCOTERMS and supply chain procedural requirements. Am I mistaken? Perhaps. Maybe the Customs perception of this industry tends to accord it too much credence?

Mid-2010, SARS addressed these issues and made a few fundamental decisions to improve this lot. It was time to build a new system from ground up, on a modern, stable technology platform. In order to ensure that the business principles and systems logic were kept intact, it was time to assign the best brains (internally) to accomplish this. In a very short period, a new system was developed and put into production, offering improved predictability in the data validation and processing. Over the last 2-3 months several manifest and cargo conveyance providers have been actively participating in a test initiative.

Automated Cargo Management (ACM) was launched ‘live’ on 6 May 2011. The reality is that the ratio of manifests to clearance declarations is a mere 17% for sea freight and 8% in the case of aircargo, respectively. The take-on in number of new air and sea cargo reporting registrants is equally abysmal. Let’s reserve any further ‘adjectives’ for now.

A recent poll hosted by a local industry web service revealed a predictable outcome (over a 5-day time period) where a vast majority of respondents indicated a negative experience with the introduction of the new system. The reality is that those who participated and the internal Customs’ experience suggest a more positive situation. Why then the poll result? Speculation suggests that the pre-implementation communication campaign was not adequate; that few operators in industry really understand what they are required to do. Is this really palusible when the outreach by SARS, service providers to their clients in trade, and the industry umbrella organisations have all been canvassing their respective members about the developments? How come only 10 new applications for registration were only received by SARS the week after implementation?

Clearly there is no urgency. Almost 10 years of advanced manifest reporting has transpired across various global supply chains, and yet some operators are still unsure of what their obligations are meant to be. So how are we going to fix this? In order to succesfully offer real AEO benefits and other advanced services within the context of Kyoto and the SAFE Framework of Standards, this needs to be rectified. In Part 2, I will sketch the options available to address if not rectify the current state of affairs. Bringing non-cooperating parties into a state of compliance is a SARS’ pastime. Talk to you soon.

by Mike Poverello

New Customs law pending for South African traders and supply chain operators

The South African Revenue Service (SARS) has just released a 2nd draft of the Customs Control Bill for public comment. The new law will replace the current Customs & Excise Act which is now over 50 years old. The draft bill is radical in its approach mainly due to the organisation’s alignment to the Revise Kyoto Convention and other key WCO standards. There will be an additional opportunity to provide comment on both draft Bills after 16 May 2011 as part of the Parliamentary process. The draft text can be found on the SARS website: http://www.sars.gov.za/home.asp?pid=294.

by Mike Poverello

Reprieve – SARS postpones implementation of Release 2

At a recent strategic session between SARS and a packed auditorium of supply chain stakeholders, it was jointly agreed to postpone the implementation of Release 2 until June 2011. For SARS there remains a significant change integration exercise – that in upskilling staff members in the use and discipline of its new user interface – Service Manager (SM).

A previous post Modernisation Release 2 – Industry testing to commence highlighted the scope for what is a significant enhancement for internal SARS’ staff. While development and testing has progressed reasonably well, stakeholders agreed that stability of certain software components was needed in order to provide all parties the necessary comfort before rolling out live to the trade. Continue reading →

by Mike Poverello

South African Supply Chain – a shift in the balance of power?

The Customs Modernisation Programme has engaged supply chain stakeholders for just on a year and 3 months now. What has been seen as an unprecedented approach to Customs/Stakeholder co-creation has no doubt also revealed some significant developments in the industry which prompt some observation and comment.

It is an understatement that the modernisation development impinges upon an individual or company’s ability to modernise on the one hand, while maintaining a constant focus and commitment to their day-to-day operational dealings with clients.

It serves well to take a step back a few years – not quite to the days of antiquity – but far enough back to when declarations were framed ‘manually’ by an entry clerk and assessed ‘manually’ by a customs officer. In both instances the clearing agent and Customs required a level of capability and skills in the specific areas of tariff and valuation. This did not stop at clearances but was a well established trait at most customs branch offices, and indeed clearance brokers, where skills in all specialised areas were generally in abundance. Companies in those days had the capacity to deal with just about any kind of customs and trade issue through their in-house knowledge base and proven track record.

In short, over the last 18 years or so, the ‘skills’ and knowledge base has gradually dwindled where in most cases only the larger companies have been able to maintain top-dollar skills on a fulltime basis. The introduction of systems has to large extent negated the need for knowledgeable (highly paid) entry clerks. A lot of these ‘skills’ landed up at one or other ‘audit firm’, and if collar-and-tie was not the desired work attire, they established their own specialised consultancies.

Automation and EDI have allowed a number of smaller players to enter the fray, but the once established methods of in-house training no longer exist. True, there are reputable learning institutions offering dedicated training, but it is widely acknowledged that mentorship within the organisation was always the best form of knowledge transfer. Some local and international organisations offer highly specialised technical e-learning offerings with ‘accredited’ diplomas or degrees. Yet, one has to question seriously how companies, and Customs for that matter, ensure a return on investment on the knowledge attained? Moreover, staff retention (attrition rather) questions the motive for training, i.e. are staff only interested in training for their personal development, or are companies not focussed enough to ensure staff is retained for a reasonable period to ensure sustainable benefit?

This brings me to the point of this post. The modernisation programme will undoubtedly offer significant benefits to trade. The first release allowed ALL traders and service providers to progress at a common pace with implementation occurring only once all were fully tested and ready. This, itself, extended to joint training programmes between SARS and the trade. The forthcoming release will however reveal the competitive edge for traders whose service providers have their act together versus those who are not quite there. Is this the desired state envisaged by SARS? No. However, equal opportunity is afforded to all involved. True, a large company can dedicate more time and resource to such developments. This is a painful trade-off for some. The reality is therefore brutally clear – to stay with the game, companies must take some pain. It is quite apparent that the pace at which change is occurring is unexpected by some members of the supply chain.

A trend amongst certain service providers has been to recruit so-called customs experts. This is both a strategic and competitive move in that service providers, today more than ever before, require a more intimate understanding of customs procedure. However, while this evolution is silently occurring it needs be mentioned that there exists a fine line in terms of the manner by which these ‘experts’ operate. Bureaus need to be cognisant of this point and their real role in the industry. If such ‘expertise’ goes beyond systems development it may require them having to license with SARS to ensure parity in the industry. These developments are not going unnoticed.

The Customs Modernisation Programme has provided an environment for radical re-structuring where the ‘fit’ will survive and thrive. Unfortunately, nostalgia and novelty are no longer a criteria.

by Mike Poverello

Increase in Passenger Allowances

SARS Customs Duty-free allowances for travellers is increased from R3 000 to R5 000 and for crew members from 500 to R700. The flat rate allowance for travellers is increased from R12 000 to R20 000, whilst that of crew members will remain the same at R2 000. These amendments will be published in the Government Gazette and come into effect on 1 March 2011.  Current forms DA331, DA305, DA307, DA308, and DA341 will be replaced by a ‘new’ DA331. Refer to SARS Modernisation web page for full details – http://www.sars.gov.za/Tools/Documents/DocumentDownload.asp?FileID=66678

by Mike Poverello

Withdrawal of ‘Transfer of Liability’ Clearance Declarations

Prior to 1 November 2010, SARS provided for the importation of goods (by a registered importer) which could be cleared under ‘transfer of liability’ (Purpose Code TIR) to a third party who is registered to process or manufacture goods under the conditions of Schedule 3 (Industrial Rebate).

In effect this allowed an importer, having no entitlement to rebate (duty relief), to clear and deliver goods to a rebate registrant for purposes of manufacture/assembly, receive the finished product and dispose of commercially.

The Customs Modernisation approach has put into motion a means by which previous clearance procedures (Purpose Codes, prior to November 2010) could be aligned with the new Customs Procedure Codes (CPCs) introduced subsequent to 1 November. Moving forward, the treatment of such goods under the new dispensation will require that the importer of the goods be licensed to operate a home use processing premises. No allowance is made for transfer of liability to a third party at time of primary importation into the Republic. Provision is however made to allow subsequent sub-contracting of the process of manufacture/assembly.

Given the aforementioned, SARS has approached ITAC regarding the economic justification of the stance permitting transfer of liability.

Manufacturers and importers must therefore take note of this matter and consider the impact to their current business models. The basic principle is that unless an importer is properly registered or licensed (as the case may be) he/she may not be entitled to import goods under certain customs procedures, specifically ‘home use processing’ and ‘inward processing’.

by Mike Poverello

Customs Bill – Poser for Cargo Carriers, Handlers and Reporters

MultimodalThe introduction of new clearance and release formalities in terms of customs procedures has a significant impact on all cargo operators, vessel’s agents, freight forwarders, ground handlers etc. Current provisions in the prevailing Customs and Excise Act, no. 91 of 1964, and its associated rules provide for the ‘clearance-free’ movement of uncleared bonded cargo from place/port of discharge to an inland terminal against the carrier’s manifest. This will not be possible once the new Customs Control and Duty Acts come into being.

Cargo manifested for inland ports will need to be removed under the National Transit procedure, implying the submission of a clearance declaration (formerly an RIB) for each consignment moved. It still needs to be determined if a groupage container can move against a single national transit clearance or if each consignment within such container must be declared for national transit. This could become an onerous burden on the controlling operator of such consol with surety implications. The alternative is for all such cargo to be cleared for ‘home use’ or other permissible procedure (other than national transit) at place/port of discharge. For consolidated cargo, can available de-grouping and depot storage facilities at sea ports manage the volumes?

Similarly transhipment cargo will also require a customs clearance declaration (bill of entry); a further consideration for carriers and agents of carriers – do they have the capacity and expertise to transact ‘national transit’ and ‘transhipment’ clearances electronically to customs? Most probably not. Notwithstanding, Customs Brokers (Clearing Agents) are also eligible to act on behalf of a carrier/cargo reporter to clear goods for transhipment.

These are but a few critical considerations which all cargo reporters need to bear in mind for the future.

by Mike Poverello

SARS clampdown nets R40.8m in illegal vehicles

For some, particularly government enforcement agencies and the motor industry will laud such a headline. Read the full article on FTWOnline .

The real question is why South Africa allows the importation and storage of these vehicles for subsequent re-exportation? This also implies the continued operation of licensed warehousing facilities for a commodity which seemingly is impossible to monitor and control. If the illegal importation of second-hand motor vehicles was outlawed we wouldn’t have to print such a headline, nor would enforcement agencies have to waste scarce resources and taxpayers money in counteracting such a threat. There is an argument that political and social conditions in our neighbouring BLNS states necessitate the ‘exportation’ of cheap vehicles to the people in these countries. Yet, this implies full customs controls at the internal land border posts between South Africa and the SACU states. Unfortunately, SARS provides little more than domestic VAT control at these borders which beckons the question why this practice is allowed.

by Mike Poverello

Modernisation Release 1 – stepping stone to success!

On Sunday morning, 31 October 2010 (just after 05h00) the culmination of 11 months hard work resulted in a successful rollover of the old customs procedures to the new. All current transactional clearance systems, information systems and the EDI gateway were successfully implemented. Thus the path to compliance of the Revised Kyoto Convention has been set in motion with several more planned enhacements in the pipeline.

The Customs operational support centre, together with all the call centres supporting industry service providers (ICT providers to the shippers and brokers) – some 20 in total I believe – kicked into place to support the customs user through the new customs clearance process.

I heard a comment that Monday (1 Nov) was too late to issue a report on the Customs implementation – evidently from a reporter’s perspective, news must be pre-emptive or current. I obviously differ and believe that a few weeks of operation need to pass by in order to accurately assess and gauge the effectiveness and efficiency of the upgraded systems and procedures.

Weeks of preparation covering the new customs procedures, implementation and fall-back plans, were supported by a contingent of willing volunteers in both SARS and industry to foster knowledge and user readiness. Almost 11 months of weekly technical sessions were avidly attended by service providers and a few shipping experts. Regular health checks were conducted to gauge trade readiness and developments. The original implementation date of 1 October 2010, was timeously postponed to afford SARS and trade additional time to satisfactorily accomplish a state of ‘joint’ readiness. While this created some initial setbacks for some providers, hindsight proves that the additional month was both very necessary and warranted for all parties.

After almost a week’s operation of the new process, it can be unequivocally stated that the implementation was a success. However, while this view is held by most, it is vigorously opposed by others. More about this in a followup post.