Understanding import duties

Being forced to pay customs duties on imports often leave traders feeling like they’re pulling at the short end of a stick. The truth is, while import duties are a source of income for our revenue service, they primarily exist as a means of protecting the local economy from foreign competitors, which benefits everyone in the long run.

What are import duties?

Customs duties are a payment on imports imposed by the Customs and Excise Act 91 of 1964. The value of the payment is usually calculated as a percentage of the value of the imported goods as set in the schedules of the Customs and Excise Act. In the case of some commodities duties are calculated either as a percentage of the value or as cents per unit (e.g. per kilogram or metre).

When we say a commodity is duty free, the import must still be cleared through customs. It just so happens in these cases that the duty payable on the goods is 0%. Do note that customs will charge VAT on imports regardless of whether there are duties payable.

All imports are classified under a HS Code (tariff code) which has a particular duty assigned to it. Therefore, to know how much duty is applicable to an import, a trader must first accurately determine under which HS Code their goods must be classified and declared at customs.

The different types of duty

In South Africa we pay ordinary customs duty in accordance with Schedule 1 Part 1 of the Customs and Excise act. Depending on the imported goods, additional duties can be found in parts 2 to 8. These include excise duties, environmental levies, fuel levies and sugar tax. In addition, an anti-dumping duty is applicable to goods that pose a threat to flooding our market. These goods are listed in Schedule 2.

Duties can also be influenced by the product’s origin. If a shipment is accompanied with a certificate of origin from a country with which South Africa has a trade agreement, a preferential duty rate may apply.

Why are import duties necessary

Let’s say a local producer is able to manufacture their product ans sell it at a set price after adding a small mark-up. If a competing supplier is able to import an equivalent product, pay the transport, add the same mark-up, and sell it for significantly less than the local manufacturer’s price, they would only incentivise customers to support foreign producers as opposed to the local manufacturer. In the long term this would negatively affect local markets, skills development, and job opportunities.

In many industries South African manufacturers are dwarfed by large scale producers like USA and China who have the means of churning out products fast and at a low cost. Where it is not viable for local manufacturers to match foreign prices, the Department of Trade and Industry (DTI) will impose a duty on imports of products to level the playing field at retail level. Customs are therefore not the government body in charge of setting the duty percentage payable, but they are responsible for ensuring traders pay the legally required tariff on their imports.

When are import duties payable?

As shipments pass through South African ports of entry, the goods are cleared by customs officials and often inspected to ensure the declared nature and value matches up to the import. Once the goods are approved for clearing, duties and import VAT are payable by the importer themselves, or their appointed clearing agent.

Companies who have a bonded warehouse may delay duty payment until such time as the goods are used in manufacturing. If goods are being imported for the purpose of export it can be moved by specially registered transporters to a bonded warehouse or directly over the border of export. In this case no duty would be payable.

Can import duties be avoided?

Imports that comply to specific conditions are eligible for a rebate (non-payment) of duties. Generally, rebates are granted to manufacturers who import raw materials so their products intended for exports may prove more competitive in international markets. To avoid importers benefitting from rebates by simply selling the raw material locally, customs requires these goods to be kept in a strictly controlled rebate stores.

Traders may also get a rebate for goods imported, used in manufacturing and sold locally, providing they can prove the local supply of a particular commodity is not enough or priced too high. In this case the trader would need to apply for a rebate.

If an importer manufactured goods for export using material they have already paid import on, they may apply for a drawback to redeem some of the duty paid.

In addition to commercial imports where payment is made to a supplier, complementary product samples, gifts and personal property entering South Africa must be cleared by customs. Traders can avoid paying unnecessary duties on these shipments by following specific regulations regarding the presentation and declaration of the goods.

This being said, if goods are dutiable under the South African customs law, it is in the trader’s best interest to pay the correct amount of duty as per the value of the import without endeavouring dishonest means of reducing the amount.