Export taxes becoming more prevalent globally

SA is following the trend by introducing an export tax on scrap metal exports in 2021.
There are concerns: the finance minister doesn't need to consult when imposing an export duty and the decision isn't reviewable under the Promotion of Administrative Justice Act. Image: Moneyweb

South Africa has joined the bandwagon in imposing export taxes to either collect more revenue or alter the flow of goods across borders.

The Customs and Excise Duty Act has been amended to allow the minister of finance to impose an export duty whenever he deems it expedient in the public interest. This amendment becomes effective from March next year.

And on April 1 South Africa will introduce an export tax on nine tariff codes on scrap metal. There has been talk about a 30% export tax on chrome and further export duties on iron ore, leather and maize. However, no implementation dates have been announced.

Duane Newman, director of Cova Advisory, says this is the first time the customs act has been amended to deal with export taxes. “This is really significant.”

This will allow the minister of finance to literally impose export taxes on any product.

Newman and Donald MacKay, director at XA International Trade Advisors, have expressed concerns about the predictability and transparency of the process under the proposed amendment. The minister is under no obligation to consult when imposing an export duty, nor is the decision reviewable under the Promotion of Administrative Justice Act since it is an executive and not an administrative action.

Export duty on scrap metal

The International Trade Administration Commission recommended in July that the current Preferential Pricing System (PPS) be replaced with export duties, since the PPS has not effectively provided support to foundries and mills with the availability of affordable, quality scrap metal.

The general duty on the nine tariff codes of scrap metal will be between 15% and 20% for countries with which SA does not have a trade agreement.

Exports on eight tariff codes to the European Union (EU) will be taxed at 10%, exports to countries in the Southern African Development Community (SADC) and European Free Trade Association countries (Iceland, Switzerland, Liechtenstein and Norway) will be duty-free, and for countries in the Mercosur trade bloc (Argentina, Brazil, Paraguay and Uruguay) the duties will range between 15% and 20% depending on the grade.

The existing trade agreement between SA and the EU states that we can only impose export duties against the EU in “exceptional circumstances”.

The EU has to be notified before the duty is introduced. MacKay says he is not aware of a formal notification to the EU.

The SADC trade agreement does not deal with export taxes, and the General Agreement on Tariffs and Trade also has little to say about export duties, except that they may be imposed. The details of an African Continental Free Trade Agreement (AcFTA) are being finalised.

Read: Africa should focus on industrialisation. Free trade will follow

MacKay predicts a “political nightmare” if SA starts imposing export duties on African countries.

South Africa’s total scrap metal exports have been declining since the introduction of the PPS around 2014. Exports have dropped – from some R10 billion a year to around R4.7 billion in 2020.

The preferential price system

The preferential price is a ‘forced discount’ at which scrap dealers can sell their scrap. Only if they cannot close the deal at the discounted price, or if there is no interest in the scrap they are selling, will they obtain an export permit.

It appears that the PPS will be extended to June 30, 2021, which means for the period from April 1 to June 30, there will be both PPS and export duties.

This has far-reaching implications, as PPS has the effect of forcing a discount into domestic sales – and now, even if there are no local buyers, the recycler will also face an export duty.

Exports in ferrous scrap dropped off significantly from 2015 because of additional rules making it harder to export. Ferrous scrap exports declined from a peak of R4.3 billion in 2010 to R1.8 billion in 2020.

Success story?

“One would be inclined to think that this was a success story and that scrap metals were diverted to downstream processors – mini-mills and foundries,” says MacKay. “It has happened. It has created quite a proliferation of mini-mills and foundries.”

However, all the new mills and foundries have been funded with discounted financing from the Industrial Development Corporation, as opposed to the ones that were there before the introduction of the PPS. They were also buying their raw material at a discounted price because of PPS.

“If that is taken away those foundries and mini-mills will in all probability fail, and in fact some of them have, even with the discount in raw materials.”

As with all trade policy interventions one has to be very careful. There are unintended consequences.

The system has certainly not altered the illegitimate trade in scrap metals or in chrome.

These dealers do not develop a conscience when they fill in their customs entry by [deciding to make] a perfectly accurate declaration, remarks MacKay.

Export duty on chrome next?

Chrome exports, as well as exports in ferrochrome, have been increasing in the last three years. The proposed export duty – rumoured to be around 30% – is not so much to discourage the export of chrome, but to increase the production of ferrochrome, which sells at roughly five/six times the price of chrome.

Mackay explains that according to Sars export statistics, the weighted average chrome ore export price for October 2019 to September 2020 was R1.82/kg FOB. The weighted average ferrochrome export price was R11.42/kg FOB. This would make ferrochrome 6.27 times as expensive as chrome ore.

MacKay says on the face of it, it would be a good idea to drive more of the chrome into a value-added product such as ferrochrome.

However, part of the reason behind the lack of ferrochrome production is the price and availability of electricity.

Newman, who chairs the incentives and grants working committee of the South African Institute of Tax Professionals, says it is unlikely that an export tax will fix the ferrochrome business problem. He suggests there could be another policy instrument that could solve the industry problem. Export taxes are certainly not the only solution, he adds.

SA is one of the largest exporters of chrome in the world (14.8 million tons), followed by Turkey and Kazakhstan. The top importing countries are China (19.5 million tons) followed by Russia and Indonesia.

MacKay warns that if SA simply imposes a very large duty and surprises China, there is a serious risk of retaliation from China. “I do not see this as a trivial risk at all.”

Read: Tariff tensions taunt traders



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Export duty on scrap metal may lower the purchasing price for local buyers, but in the case of maize, it will cause the price to double for local consumers.

When local farmers have a good harvest and produce an adequate supply of maize, the price trades at export parity. The export duty will lower this unprofitable price for farmers further. Farmers won’t be able to access credit lines from the banks, because they do not have a profitable business model. The local production of maize will decline until there is a shortage of maize, causing the price to double to import parity.

The consumers will be punished by this short-sighted move. The cost of maize meal will double, food insecurity and malnutrition will rise and social unrest will increase because an ignorant central planning official at the DTI has decided to interfere in the market mechanism to subsidise the price of maize meal by plundering hardworking farmers.

The flip side is that Mittal (when they are producing) charge import parity pricing. I have had projects where the imported price for fully made up ground mount solar is cheaper than what a local manufacturer could buy the steel from Mittal at. Trade is hopelessly distorted when (1) Mittal charges import parity price for local metal (2) the chinese product manufacturer has chinese subsidies that not only reduce his labor but also ELIMINATE the freight and insurance charges that Mittal used in their fake local price.

We could have a much larger steel product manufacturing industry if we could buy steel at the Mittal gate price. We damned well now import complete radiators for vehicles that are assembled in SA for export. That is insane!

Sasol over-produces methanol as a byproduct but there is no value adding market for Methanol in SA because Sasol uses the Chicago spot price when you ask for a quote. We could use lakes of methanol in cleaner fuel cells that on top of the methanol could be using south african platinum catalysts…

We tend to open our mouth to change what foot we shoot ourselves in!

Well, there goes my hopes for opening an export business…. It’s simply not being conducive to trade when such taxes are levied. In fact, it becomes more and more non-conducive to open any business in SA.

My wife and I thought we could open a tourism business as she had lots of contacts overseas.

Thank God, we didn’t bother in the end as we would be dead in the water and taxes are too high here – we managed to escape in October from SA

In house ferrochrome production?

Bit late considering the erratic power supply

More taxes upon an already cripling tax load to fund deeper and more pervasive corruption and missappropriation of tax payers money.

Friend closed his factory down in JHB, moved everything to Botswana. Now exporting to SA &globally #nostrikes, #noshutdowns, #noBEE_BS #fullsolarsupply

Indeed, it is no longer worthwhile to be in SA. It is expensive, over-regulated, onerous and the onus is always on YOU to do everything. The cost of electricity and general taxation has made it into a nightmare.

Well done and glad you had the guts to make the move as most SAffers are just too scared and still believe in the ‘things will get better’.

Sorry, YOU make your destiny and NOT the regime!

“The proposed export duty – rumoured to be around 30% – is not so much to discourage the export of chrome, but to increase the production of ferrochrome, which sells at roughly five times the price of chrome”.

Not true. The price of ferrochrome is about US$2.50 per kg. The price of chrome (99%) is about $6 per kg.

I think ferrochrome like stainless steel is less than 20% chrome?

Hi Johan -it various depending on the chromite ore feedstock. Remember chromite (the spinel group mineral) contains iron and chromium. Typical ferrochrome is about 60% chromium but the Zimbo stuff is higher grade.

Hi Richard. Please see Amanda’s update, with comment from Donald Mackay explaining why ferrochrome is said to sell for more than chrome.

End of comments.




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