South Africa’s business community should brace itself for several changes to the current guidelines and regulations in the customs and excise policy framework.
It is expected that SA will see more ‘lobby-type’ anti-dumping and tariff investigations as government becomes more supportive of protecting the local economy, says Caroline Rheeder, associate director at Cova Advisory & Associates.
She was one of the speakers during the first in a series of webinars, hosted by the South African Institute of Tax Professionals, on tax proposals and how they will affect industries.
Rheeder says there was a lot of attention on customs and excise during the February budget. Details of some of the proposals will only become clear once the draft taxation bills are published around July.
Tobacco and alcohol
One aspect that will need close attention by everyone affected is National Treasury’s review of the policy framework for tobacco and alcohol. These sectors received the short stick when government tried to curb the spread of the coronavirus during the first and second waves.
The alcohol industry was especially singled out, with total trading bans during the stricter Covid-19 lockdown levels.
According to revenue figures for the 2020 tax year, industries that contributed to excisable products had a net decline year on year across all taxes of R21 billion (33%).
The underrecovery from tobacco and alcohol alone was R14 billion.
Both these industries were slapped with an 8% increase in excise duties for the current tax year. This is more than double the inflation rate.
National Treasury gave some insight into its thinking about the industries in its February Budget Review. It refers to the almost three million worldwide deaths caused by the “harmful consumption of alcohol” and notes that despite high increases in excise duties South Africa’s cigarettes were more affordable in 2018 than in 2008.
Read: Sin taxes and illicit trade (Sep 2020)
Another issue that should make all industries sit up and take note is the introduction of export taxes. 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.
The first export tax to be introduced is on scrap metal, but implementation has been postponed to August.
Exports on eight tariff codes to the European Union (EU) were set to 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) would have been duty-free, and for countries in the Mercosur trade bloc (Argentina, Brazil, Paraguay and Uruguay) the duties were set at between 15% and 20% depending on the grade.
Rheeder says thinking that the export tax on scrap metal is only of interest to primary producers or manufacturers would be a mistake.
This specific industry has long and broad downstream and upstream industries.
“There are a lot of players who will be affected and [this] should not be written off immediately as something that is of no interest. The final consumer often bears the cost and you will need to assess the impact.”
She says it is important to note that SA has now entered the realm of export taxes. It may currently be limited to scrap metal, but in future it may be extended to a number of other products.
“We need to keep an eye on how the tax will be structured, enforced and collected, and where to find information about it since it may apply to other products in future.”
Critical eyes on incentives
During the same webinar Nadia Rawjee, executive director at Uzenzele Holdings, said around 50% to 55% of the Department of Trade, Industry and Competition’s budget is directed to incentives.
However, due to the impact of Covid-19 the original budget was cut by almost 20%, leaving R4.8 billion available for incentives.
She warns that incentives will become more “competitive and challenging to navigate given the reductions in the department’s budget”, adding that there will be “more critical eyes” on future applications.
She warns businesses not to invest in projects prior to the submission and approval of incentive applications from the department.
“Timing and planning will be critical,” says Rawjee.
She also refers to the push by government to increase the “localisation” of the economy.
This will see more focus on anti-dumping measures, master plans with very specific requirements, and higher expectations of social and financial returns when granting incentives.