Domestic Courts and Customs Governance: Time for urgent Reform?
Mis-invoicing in trade is a massive problem in South Africa, and elsewhere in Africa. Trade mis-invoicing occurs when companies or individuals falsify the prices of goods on import (or export) invoices in order to avoid import taxes or to qualify for subsidies. It is also a common method of illicitly shifting money in or out of countries. It constitutes a major form of illicit financial flows, resulting in a massive loss of tax revenues primarily for developing countries.
A recently published report by Global Financial Integrity estimates that the South African State has lost $37-billion ($7.4-billion a year) in potential government revenue due to trade mis-invoicing between 2010 and 2014, the period for which bilateral trade statistics were analysed.
Dealing with trade mis-invoicing comes down to effective and modern customs governance, which will require revamping and reforming existing structures. It is well known that corruption, fragmentation in administrative practices, as well as lack of technical capacity, are major problems. In South Africa it must also be assured that the rule of law is complied with and that the rights of importers are respected. These rights include constitutionally sanctioned due process rules. Are things improving or getting worse? What is happening in practice?
In this Trade Brief we take a look at a recent South African Court case dealing with measures to counter customs fraud and the under-invoicing of imported goods. The facts (and the ruling) indicate that local customs officials face specific difficulties. There is a lack of proper procedures, technical capacity and powers to deal with the intricacies and the rules for ensuring effective customs governance.
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