GLOSSARY: Terms related to Customs duties, VAT and Excise tax

Your source of simple, clear definitions of common import and export terms used in relation to Customs duties, VAT and Excise tax.

AGOA

The African Growth and Opportunity Act is legislation that was approved by the U.S. Congress in May 2000. The purpose of AGOA is to assist the economies of sub-Saharan Africa and to improve their economic relations with the United States of America.

Exports from South Africa that comply to AGOA requirements receive preferential import duty rates in the United States of America.

Bilateral trade agreement

A trade agreement where both imports and exports from a member country may incur preferential rates of duty.

Bond

A bank or insurance security taken out to assure SARS that the tax on goods kept within a Customs and Excise Storage Warehouse can be paid should the goods ever go missing.

Bond Store

See Customs and Excise storage warehouse

Bonded Goods

Imported or manufactured goods on which Customs, or Excise tax has not been paid. These goods are kept in a Customs and Excise Storage Warehouse with a security (bond) towards taxes outstanding in accordance with the Customs and Excise Act.

Certificate Of Origin

A document supplied by an exporter to verify compliance to the rules of origin relevant to a trade agreement, or to verify product origin.

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Chamber Of Commerce

An international institution who’s function it is to manage and ensure fair practice in international trade.

CIF

CIF (Cost Insurance and Freight) is and Incoterm whereby the seller is responsible for providing the goods, carriage, and insurance of a shipment to an elected point as specified according to the rules of the term.

Commercial Invoice

A mandatory customs document used in international trade.

The commercial invoice acts as a conformation of an international sale provided by the entity exporting goods. The parties involved in the shipping transaction, the goods being transported, the country of origin, the HS codes for those goods and the terms of the sale are noted on this document.

Most international shipments are required to be accompanied with a commercial invoice, regardless of whether the goods represent a monetary transaction.

Click here to access our guide on completing a commercial invoice.

Click here to download a Customs compliant commercial invoice template.

Customs Clearance

Approval by Customs officials that goods may leave or enter the country.

Customs Declaration

The official form required for Customs to process and clear imports and exports. Also called an SAD500 form.

Customs And Excise Storage Warehouse (Bonded Warehouse)

A premises or area licensed by SARS for the storage of and allowable processing of bonded goods. Often referred to as a bond store or rebate store.

Customs Union

Also called a “trade union” or “trade bloc”.

A free trade area with a common external tariff which consists of more than one country. Typically, the members of a customs union work off one customs policy and tariff book. No Customs duties are payable on shipments between members of a customs union.

DAP

DAP (Delivered at Place) is an Incoterm where the supplier is responsible for the cost of delivering the shipment to a specified location in the country of import, but not for the cot of clearing the goods.

Drawback

A claim on Customs tax paid to SARS according to Schedule 5 Part 1.

EFTA-SACU FTA

The European Free Trade Association-SACU Free Trade Agreement allows free trade between SACU member and the four EFTA members based in Europe.

Excise

Duties and levies imposed mostly on locally produced high-volume daily consumable products (such petroleum) as well as certain non-essential or luxury items.

The primary function of Excise tax is to ensure a constant stream of revenue for the State. The secondary function is discouraging consumption of certain products that are harmful to human health or to the environment.

Excise Manufacturing Warehouse

A premises licensed by SARS for the manufacturing of excisable goods in order to control Excise tax payments.

EXW

EXW (ExWorks) is an Incoterm whereby the seller is responsible for supplying the goods only. All loading, carriage and insurance is arranged by the buyer.

FOB

FOB (Free on Board) is an Incoterm whereby the seller is responsible for providing the goods and transport to the export carrier. South African Customs uses FOB value as the Customs value for calculating duties payable.

Free Trade Zone

An area wherein imports and exports can move without restriction and without incurring duty.

GATT

The General Agreement on Tariffs and Trade is a legal agreement between many countries. The overall purpose of GATT is to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. Customs authorities use the rules outlined by GATT to fairly determine Customs Value of imports.

The rules of GATT for determining Customs Value:

N1 – Transaction value

Most often used rule. Import duty is applied according to the transaction value of the goods i.e. the FOB price paid by the importer

N2 – Transaction value of identical imports

If Customs find the transaction value to be disproportionately low compared to market value.

N3 – Transaction value of similar imports

If no identical reference is available.

N4 – Deductive method

Where the customs value is derived from the selling price of the imported goods in the South African market.

N5 – Computed method

Where a value is derived from the value of the components withing the imported goods.

N6 – “Fall-back” method

One of the other 5 methods applied more flexibly.

GSP

The Generalized System of Preferences is a preferential tariff system managed by the World Trade Organization.

The purpose of the GSP is for developed nations to give trade preference to developing nations by waiving Most Favoured Nation rights to wealthy trade partners.

HS Codes (Also Referred To As Tariff Codes)

An international numerical system Customs authorities use to classify all goods for international trade. Besides the rate of duty, the HS code tells the customs official about any regulations and restrictions applicable to the import.

The first 4 digits of an HS code is called the HS or tariff heading.

Export Duty

Tax levied on goods leaving a country according to Customs law with the purpose of protecting local supply and/or generating state income.

Import Duty

Tax levied on goods coming into a country by Customs law with the purpose of protecting local industry and/or generating state income. In the Southern African Customs Union, duties are payable according to the Customs and Excise Act 91 of 1964.

Import VAT

VAT payable on imported goods in accordance with the VAT Act.

Incoterms

The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international trade.

Traders may elect to use Incoterms in a sales agreement as a means of stipulating parties responsible for cost and risk while goods are in transit.

MERCOSUR-SACU FTA

The Common Market of the South-SACU Free Trade Agreement allows for referential rates of duty on certain commodities between SACU members and the four MERCOSUR members based in South America.

Preferential Rate

A reduced rate of Customs duty based on compliance to a trade agreement.

Rebate

A non-payment of import tax according to allowances in Schedules 3, 4 and 6.

Refund

A claim on import tax paid to SARS according to Schedule 5 Part 2-6.

SACU

The Southern African Customs Union consists of five countries acting as a single trade zone for the purpose of collecting Customs duties. The members of SACU are Botswana, Eswatini, Lesotho, Namibia, and South Africa.

SACU was established in 1910 and is therefore the oldest existing customs union in the world.

SADC-EU EPA

The SADC-EU Economic Partnership Agreement is a trade agreement between all members of SADC and all member nations of the European Union.

Trade between members incurs preferential duty rates.

SADC FTA

The Southern African Development Community Free Trade Agreement is a trade agreement which originated in 1992. It allows for duty free trade on most commodities between 16 African member nations.

Schedules

Accompanying documents to a South African Act listing up-to-date information pertaining to the laws stated in the Act.

E.g. The Schedules of the Customs and Excise Act.

Shipper’s Statement Of Expenses

A declaration required when an commercial invoice for import does not specify the FOB Customs value.

Stowage Factor (SF)

Stowage factor is a number which indicates the volume occupied by one metric tonne when stowed in a cargo space.

It is calculated as follows: SF = Mass (t) / Volume (m3)

I.e. Cargo with a mass of 1 metric tonne which occupies 2 cubic meters of space would have a stowage factor of 0.5.

Tariff Book

A term often used to refer to the Schedules of the Customs and Excise Act which list taxes applicable to imports, exports and excisable goods according to HS classification.

The most recent version of the tariff book is available on the SARS website.

Tariff Codes

See HS codes

Tariff Dispute

When SARS Customs raises grievance due to the nature of imported goods not matching the import declaration provided by the importer.

Trade Agreement

A mutual understanding between two or more nations on how they will work together to ensure mutual trade benefit for the purpose of supporting growth in one another’s economies.

Rate Of Duty

A value or percentage whereby duty payable can be calculated based on the taxable value or volume of a shipment. Rates of duty are listed in the tariff book according to HS code.

Rebate Store