Frequently we come across clients, who import and export products, who are ill informed about the importance of customs duties. Sure some view customs duties as a necessary evil which one just has to accept. However, you should only have this view once you are sure that you are applying the correct customs duty to your product, if a customs duty is at all applicable.

The difference in the applicable tax that you have to pay when importing a product under the incorrect tariff could be huge, thus costing you a lot more money than it should. Frequently businesses outsource this aspect of their business to an agent, such as a freight forwarder, who may not possess the necessary legal skills in order to classify a particular good under the correct tariff heading. Often, these determinations are wrong. This could mean that you might have saved some money if you imported the product under the correct tariff heading. You could also be taxed at a higher rate than what you were advised by your agent.  In certain circumstances it could even mean that your business does not have an import history which could mean that you may no longer be allowed to import the product concerned. An example hereof was seen in the recent quotas imposed on clothing and textiles being imported from China. All of a sudden many importers could not receive a quota, because they have been importing under the incorrect tariff heading. Any such hassle may be avoided by obtaining a prior legal opinion on the matter, which cost would mostly be negligible in comparison with any loss which the business has now suffered as a result of not seeking such advise.

Customs duties are not however only about determining what tax is applicable to a product. It may even be used to strategically position your business. A thorough knowledge of customs duties will show you that there are various ways to claim a refund (also referred to a as rebate or drawback) on the tax you pay for your imports. Such knowledge could therefore be used to position your business as an exporter for example. Such ‘tax-free’ imports relate to amongst other things the following:

• imports of goods used in the manufacture of other goods for local consumption;
• imports of goods used in the manufacture of other goods for export;
• imports of goods which are only temporarily in the country for adjustments, repair, etc which is then re-exported; and
• imports of goods for local consumption.

There are vast differences in the rules that apply to each of these refunds and importers will not automatically receive the refunds. Instead importers have to apply for these refunds, preferably before the goods were imported, in order to receive these refunds. The importer will also have to comply with certain legal requirements, which varies between the purposes for which the goods are imported, before such an application will be approved. It will be worthwhile to request a comprehensive review of your business’ customs exposure. Such a review may save your business a great deal of money.

By Rian Geldenhuys
© Trade Law Chambers 2008