Address by Commissioner of the South African Revenue Service Mr Oupa Magashula to the annual Road Freight Association convention
23 Aug 2010
Ladies and gentlemen, it is indeed a privilege to be invited to address so many critical stakeholders in the supply chain. Your role cannot be under-estimated in our national strategy to boost trade, grow our economy, create jobs and ultimately enhance the prosperity of our country and all its people. It is appropriate that your convention takes place just two weeks after I met with a wide range of stakeholders in the supply chain to share with them details of some of the trade facilitation initiatives that SARS and our partners are introducing as part of the Customs Modernisation programme.
This invitation provides me with an opportunity to widen our engagement around these and other initiatives to streamline the supply chain to speed up the movement of legitimate goods while at the same time enhancing our ability to detect and deter the trafficking of illegal and illicit goods.
The economic challenge we face
Taking steps to reduce the barriers to trade has never been more imperative for all the partners in the supply chain. Our economic recovery – and indeed the economic recovery of our global trading partners – needs all the help it can get to sustain and expand the initial momentum we have seen during the first two quarters of this year.
Economic growth came in at 4.6% in the first quarter and according to forecasts will ease off slightly in the second quarter. But this is not enough. Meeting the needs of all our people and especially creating sustainable employment growth requires a far higher trajectory of economic growth than we have seen to date. In a speech last week the Minister of Finance Mr Pavin Gordhan set South Africa the challenge of creating the conditions which would lead to growth levels of 7% a year. Allow me to quote from his address at the launch of the Land Bank Annual Report because it has direct bearing on us as trade facilitators.
The Minister said: "If we are to grow faster, we must create an environment that is favourable to domestic and foreign investment. We are all aware that we must cut red tape; we must lower the cost of doing business in South Africa, and deliver quality public services for our citizens. We must increase competition between firms – a serious challenge in South Africa; lower barriers to entry in the economy; support innovation and above all, increase exports". In this quotation are a number of challenges for us. Together we must find ways of cutting red tape. Together, we must find ways of lower the cost of doing business. Together we must lower barriers to entry in the economy. And, above all, together we must increase exports.
The role of trade in economic growth
Ladies and gentlemen, I do not have to tell you that trade is a critical enabler of South Africa’s economic growth and development.
According to the World Bank, unnecessary Customs delays have more widespread effects than merely increasing costs; the Doing Business 2009 report suggests that the more delays in the import and export process, the less likely that a trader will be able to reach markets. This of course negatively affects the ability to expand businesses and create jobs. According to a recent OECD study, reducing delays at borders by 6.3%, or the number of documents required for trading by 11%, could increase trade flows in Africa by 10%. Another study also estimates that reducing border delays in African economies by just 1 day could increase exports by 1%. The United Nations Conference on Trade and Development (UNCTAD) estimates that the average customs transaction involves up to 30 different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) and the re-keying of 60–70% of all data at least once.
The simplification of this very complex and burdensome process can play a key role in lifting economic growth towards the 7% target which the Minister of Finance last week said South Africa should aspire to in order to create jobs and sustainably address our development needs as a country.
According to the World Bank, countries that have a high ranking on the ease of trading across borders have the following in common:
- They require fewer documents.
- They allow traders to submit those documents electronically, preferably before the goods arrive at the port.
- They limit physical inspections to the riskiest cargo.
- They have fast-track clearance procedures for selected companies, auditing their shipments only after clearance.
As partners in the supply chain, we share responsibility for this process. The World Bank advocates that it is not only Customs formalities that negatively affect the time and cost for trading across borders. Customs clearing agents, transport and logistics companies and port service providers also have a key role to play in minimising delays and red tape.
Towards a sustainable partnership
Ladies and gentlemen, if we are to come anywhere near growth rate of 7%, we will have to find ways of cutting the costs of getting our goods to market. None of us owns the supply chain – each of us have different but co-dependent roles to play in the process. And each of us has a role to play in ensuring that the various parts of the supply chain aid rather than impede economic activity. That is why as part of our preparations and planning for the Customs Modernisation Programme, we have been engaging with key stakeholders around the design of this programme and its products since the Minister of Finance officially launched the programme in October last year. But the collaboration in developing this programme is just the beginning. Without your continued support and partnership in the implementation of this programme, it cannot succeed.
The SARS compliance approach
Ladies and gentlemen, our modernisation journey, which we began in 2007, is all about gearing SARS and our clients for greater compliance with the legislation which governs tax and customs. The foundation of this journey – and indeed for the entire SARS strategic approach – is our compliance model which is in use in many countries around the world. The basis of the model is that there are two key ingredients to achieve the desired compliant behaviour by taxpayers and traders. Those ingredients are service and enforcement.
With regard to improved service for those who comply, the approach advocates that compliance levels will improve if we make it as easy, convenient and quick as possible for people to meet their obligations. Internationally, in Customs, guided by international instruments such as, inter alia, the Revised Kyoto Convention and the WCO SAFE Framework of Standards, that implies that compliant traders would receive trade facilitation benefits such as the provision of simplified submission channels, more efficient processing of bills of entry and exceptions, improved turnaround times, differentiated treatment for compliant traders, intervention by exception, a primary reliance on audit based controls and partnerships with leading supply chain entities.
The second ingredient is credible enforcement and punishment for those who choose not to be compliant. This is about making it as difficult as possible for people to get away with non-compliance and having a credible threat of detection and punishment for those who fail to meet their obligations. In Customs for non-compliant traders, this would imply increased real-time intervention, enhanced audits of industry systems and procedures, increased investigation where non-compliance is suspected. This enforcement side is not just to about convincing those who don’t want to be compliant that the risks are not worth taking. It is also about fairness for those who choose to be compliant. Because if you are paying your duties and meeting all of your obligations you want to be sure that everyone is or else there is a very uneven playing field.
Existing initiatives to streamline Customs
So what are we doing as Customs to help create the conditions to boost trade and grow the economy, to reduce red tape, to lower the barriers to entry?
Ladies and gentlemen, our modernisation programme has already delivered a number of benefits to traders. Twelve months ago SARS introduced e-Release, an initiative that removed the dependency on paper-based release controls where parties use EDI (Electronic Data Interchange). SARS has also recently introduced improvements to the Exports assessment and inspection processes. This year has also seen significant improvements in the movement of passengers at our ports of entry through an enhanced Movement Control System which was developed by SARS in conjunction with the Department of Home Affairs. Since the roll out of this new system at all major ports of entry shortly before the start of the 2010 FIFA World Cup, more than 6.5 million movements have been processed on the system bringing massive gains in both efficiency and security.
We have also recently implemented an enhanced system of goods clearance to significantly reduce congestion at the Lebombo border post by moving the clearance of goods away from the border to new facilities 7 kilometres inside South Africa and 4 kilometres inside Mozambique which has hugely streamlined traffic congestion and the movement of goods at that border post. I would like to read a note which we received from Brenda Horne-Ferreira, the CEO of the Maputo Corridor Logistics Initiative after we introduced the changes:
Thank you for enquiring around the improvements at the Lebombo Border Post. I furthermore engaged with another couple of frequent users this morning and they all confirmed that things are now much improved at the immigration desks and what is very useful is the special tent for 2010 and SA passport Holders. Two of them confirmed that from the entrance door to being fully processed by immigration has not taken them longer than 6 minutes – indeed a huge improvement.
Furthermore the impact of not having the commercial freight vehicles through the frontier and having all their documents processed at kilometre 4 and kilometre 7 is immense – the users felt like there is control back at the border post! We remain extremely grateful to all departments for working together to bring about this very positive change and will greatly appreciate you conveying this as such. We have also been working with the South African Reserve Bank to facilitate improvements in the way we manage foreign exchange regulations in the export process including a pilot project to do away with the F178 form.
I mention these initiatives because our border posts and the supply chain is an integrated process involving a wide range of public and private sector stakeholders and the facilitation of trade and protection of our borders are two sides of the same coin. All the processes and systems on both sides must work in harmony in order to achieve these common goals. Based on the success of the Lebombo pilot, we will also be assessing how we can implement similar measures at other land border posts to reduce congestion and a number of government agencies will soon be visiting other border posts to assess how we can cooperate to bring greater efficiencies to the border posts.
The Customs Modernisation Programme
Ladies and gentlemen, let me now turn in slightly more detail to the initiatives we are planning to introduce as part of our Customs Modernisation Programme over the next 18 months. At a time when technological developments are changing the world of international trade and travel, we will focus on minimising the level of Customs intervention in cargo movements and maximising the level of trade facilitation by:
- revolutionising the core Customs processing system
- enhancing risk management techniques to better identify suspect imports and exports for scrutiny
- Implementing new philosophies on Customs and border control and engaging with private sector partners in mutually beneficial alliances
This focus manifests itself in a Customs modernisation agenda that replaces aging legacy systems with a locally developed cutting edge integrated customs and border management solution. This solution, which is already in use and been tested in a European country, will allow for seamless, swift movement of goods and passengers while at the same time enhancing our ability to identify risk earlier in the process and thereby focussing our enforcement resources on high-risk consignments.
The solution provides the opportunity for massive gains in streamlining and improving supply chain security for all stakeholders not only for South Africa but for its neighbours and other regional partners. We have already negotiated the implementation of the solution in Lesotho with support from the international community and will engage with other countries to explore further expansion through the African Tax Administration Forum. Allow me to briefly highlight some of the other key aspects of the programme.
1. Electronic Supporting Documents:
For Customs stakeholders, SARS will be extending the facility for traders to electronically submit any supporting document required by customs for the finalisation of a transaction or case. Various 3rd party software providers will be offering tailored facilities within their applications to facilitate this requirement as an integral part of their solutions. This will contribute greatly towards reducing paper overload and the burden on the trader or broker to physically deliver them to SARS.
2. Implementing risk-based Customs assessment:
The new way of working will provide a risk-based automated facility which will “push” the highest risk declaration at any given time to the assessment officer. This improves integrity of the customs process and will ensure that any opportunity for gain by either an internal user or collusion between internal and external parties is negated.
3. Single Registration:
During the first quarter of 2011, SARS is introducing a single registration application process for all SARS’s stakeholders. This means that taxpayers, traders and practitioners will have a single interface to SARS for all their client needs. Once introduced, clients can either register electronically or they will have the choice to go to any SARS office and physically register for any Customs products, for example, Customs clients can apply at Taxpayer Service branches for application to register or license with SARS. The application will be completed on a single integrated SARS form known as the SR-1 or Single Registration form.
4. Preferred Trader pilot programme:
Part of SARS’s segmentation approach involves Customs redefining its Accreditation Programme to provide greater benefits for those demonstrating greater compliance. SARS is currently piloting a preferred trader initiative with about 30 importers and exporters that requires the client to perform a self assessment of their business systems and compliance with Customs’ formalities. Upon validation of their compliance by Customs Audit, these traders will receive customised services and benefits respective to their standing. The intention is to roll out this initiative to all qualifying traders.
Ladies and gentlemen, between the partners in the supply chain, we are responsible for the lifeblood of our economy. A staggering R1.5 trillion worth of goods moves through South Africa’s borders each year. Each year, more than 160 000 trucks move through Beit Bridge Border post and a further 60 000 move through Lebombo. That is an average of over 600 trucks a day at these two border posts alone. It is in all of our interest to ensure that those carrying legitimate goods move swiftly and unimpeded through the borders. At the same time, it is in all our interest to ensure that those carrying illicit goods do not.
We cannot do this alone. As customs we sit in the middle of the international supply chain. Your role, as transporters, spans both sides of the border post. You have direct access to and engagement with both the receivers and dispatchers of goods. You frequently know – or should know – what is in the back of your trucks. In this regard, you also have a critical role to play in helping us to promote compliance. If we are embark on a closer relationship in which we view each other as partners in this process rather than protagonists, then we have to be able to rely on one another to share common goal which is ultimately to build the prosperity of our nation and all its people.
Ladies and gentlemen, I was told by your Chairperson, Mr Frank Wagner, before speaking that between 83% and 89% of all goods in South Africa are transported in trucks and I couldn’t help but notice the slogan of the Road Freight Association which says “Without trucks, South Africa stops”. We at SARS like to think that without tax South Africa stops! With your help and partnership to facilitate the movement of goods through our border posts, perhaps one day we can say “Without stops (at the border), South Africa trucks!”
I thank you.
Source: South African Revenue Services
Issued by: South African Revenue Service
23 Aug 2010
[ Top ]