Sars continues to fight against illicit trade

The South African Revenue Service (Sars) seems to be losing the fight against smuggling, counterfeit goods and tax evasion in the country.

In 2019 it lost approximately R2.1 billion in revenue as a result of illicit trade.

Beyers Theron, Sars customs and excise chief, said yesterday during a Tax Justice SA press briefing that despite coming up with innovative ways to crack down on illicit trade within the country, importers and exporters continue to find ways to avoid paying the duties and value-added tax that apply to the goods.

“When you address one thing on [one] side, then it pops up on the other side in a different form,” Theron said.

Illicit trade is a major challenge for the economy because it impacts the amount of revenue that Sars is able to collect for the growth and development of the country.

Theron said the major challenges Sars has identified are non-compliance and customs fraud.

Customs fraud is on the rise, including through the misdeclaration (undervaluation) of goods.

“The traditional approach of how we do things as government is not going to stop the scourge of illicit trade,” said Theron. “We need to become much smarter. We will use the latest technology and data analysis to find the needle in the haystack.”

Big industry players also at fault

“We are finding that big and reputable industry players are part and parcel of the problem that we must deal with. They are hiding behind third party players that are also involved in the undervaluation of goods. These buyers [for large retailers] need to come to the party and start being compliant as well,” Theron said.

Globally, illicit trade amounts to an estimated $650 billion per annum, with the illicit economy representing approximately 15% of the world’s GDP and 7% of the world’s circulating merchandise.

Theron said the industries most affected by illicit trade are tobacco, textile and clothing.

“Tobacco has been at the forefront for many years,” he said, adding that in the past years SA has seen textile and clothing factories closing down and jobs being lost because of illicit trading.

Theron said that in the textile and clothing sector merchandisers would declare items for R0.02 to the US dollar.

“If you take the input costs for a garment, there is absolutely no way that anyone can declare that particular amount of value,” Theron said.

Theron said due to World Trade Organisation rules Sars cannot confiscate goods if it cannot prove that the value of the item is incorrect.

He added that the challenge Sars is facing now is seeing new criminals in illicit trade emerging in the furniture sector as well as the sugar industry.

“We introduce the sugar tax, and now the sugar tax is also a victim of illicit trade,” Theron said.

In October last year, Sars formed part of an inter-agency working group with the Department of Trade and Industry and National Treasury, focusing on, among others, the clothing, textile, leather and footwear industry.

It says it started to see an increase in the number of stops and inspections that were put in place.

“In December we realised that there was value [declaration] increase of 25% to 700%. We started seeing that there is a change in value behaviour; in what they declare legally. Do we believe the values are correct? No, but it is starting to adjust upwards and that means we are starting to see that the revenue becomes a little bit more,” Theron said.

Sars has also started to see a decrease in the declared value of goods being imported, of between 44% and 75%.

“So that means something is changing, or maybe it is a waiting game to say ‘Let’s not stock because Sars is detaining our stock’, or they are just scared of exposure.

“Are we going to leave it at that? No. Like our commissioner would say, ‘Without fear or favour’ we will make sure that we get stuck on this industry up to the point that we believe that we are at a level of compliance that is within acceptable norms.”

Solutions

Sars is now implementing an arrangement with the country’s strategic trade partners whereby it can match import and export data with them. It says it found in the past that the export and import numbers between countries did not match.

“We have started to engage [with our] Chinese counterparts and have started working with the Chinese embassy in SA. We have also started working with their counterparts as we are noticing that this is a problem and we have a mutual assistance agreement. It is important so that when a person exports [something] from China, for example, and they declare it at R0.02 to the US dollar, that we can confirm that what they have with us is what they have also declared in China,” Theron said.

He said since they embarked on this journey last October, undervaluation between the export declaration and the import declaration has ranged between 90% and 200%.

Theron encourages consumers to be aware of the impact of buying counterfeit goods.

Gwarega Mangozhe, CEO of the Consumer Goods Council of South Africa, said they have set up an illicit trade desk working hand in hand with Sars and Tax Justice SA to encourage ethical business practices.

“We are set to launch an anonymous tip-off hotline [this week] where people can send through information with regard to illicit trade and other criminality.”