The South African Revenue Services (SARS) is in the process of amending the Customs and Excise Act in order to uncover more schemes set up to avoid or reduce the payment of customs duty.

The Second Taxation Laws Amendment Bill, proposes to insert provisions in the Customs and Excise Act through section 29, which is aimed at schemes set up for the purpose of avoiding duty or reducing the amounts of duty payable.

In terms of the proposed amendment, which should come into effect shortly, if the SARS is satisfied on reasonable grounds that any scheme has been entered into or carried out which has the effect of avoiding liability for duty or reducing the amount of duty payable, SARS shall determine the liability for any duty and amount thereof as if the scheme has not been entered into or carried out in such a manner as SARS deem appropriate for ensuring the correct amount of duty is paid. This legislative inclusion is thus approximately the same as what we find in several other pieces of legislation and in the common law, including the revoked section in the Income Tax Act. The underlying rationale is to give effect to the intention of the parties involved, which is presumably to avoid some or other consequence, in most instances related to a form of tax. The proposed amendment also has this as its underlying rationale and it specifies that SARS may have regard to intention of the manufacturer, importer or user of the goods to establish the true characteristics, functions or use of the goods in order to determine whether there are reasonable grounds to believe that the scheme is actually one of avoiding or reducing liability for customs duty.

The proposed amendment will make it difficult for businesses running avoidance schemes to continue as a ?scheme? is very widely defined in order to bring more of these practices within the ambit of the proposed provision. A scheme includes any transaction, operation, scheme or understanding whether enforceable or not including all steps and transactions by which it is carried into effect. It could also include the situation where a business makes any arrangement with a supplier, manufacturer, exporter or seller of goods with the object of evading customs duty.

In addition the burden of proof is placed on persons suspected of being involved in an avoidance or reduction scheme to show that they are indeed innocent. According to section 29, if SARS proves that the scheme does result in avoiding liability for duty or reducing the amount of duty payable, it shall be presumed, in the absence of evidence to the contrary that raises a reasonable doubt, that he scheme was entered into or carried out solely or mainly for the purpose of achieving avoidance or a reduction in liability for the payment of customs duty.

Importers and exporters are thus cautioned to ensure that they are indeed classifying their products correctly and paying the correct duty in order to avoid the costly delays that may be associated with being suspected of being part of a scheme for the avoidance or reduction of customs duty. For further information on customs duty, kindly contact Rian Geldenhuys.