The South African Revenue Service ("SARS") has recently been examining the cost of international freight.

As those involved in the international movement of cargo will know, valuation in South Africa is determined with reference to the free on board (“FOB”) price. This means that all charges incurred up to the point that the cargo is loaded onto the foreign-going vessel, are to be included in the customs value when making a declaration to SARS.

If the International Commercial Term ("incoterm") is FOB, SARS may request that the importer provide the cost of the inland transport in the country of export, i.e. the cost involved in transporting the goods from the supplier’s premises and loading onto the exporting vessel, as all such charges should be included in the declared customs value.

As often happens, importers contract on a cost and freight (“CFR”) basis with their suppliers, meaning that the cost of the international freight is included in the price invoiced to the importer.  Since our point of valuation is FOB, all the charges related to the international freight are not dutiable and must be excluded from the customs value reflected on the declaration to SARS.  It is imperative that the supplier reflects additional charges (e.g. freight) as separate line items on the invoice.

Where for example, the CFR incoterm is used, SARS has the right to request that the importer provide proof of the freight costs incurred.  SARS may even ask the importer to provide proof of payment of the freight made by the exporter to his agent.  This can be a challenge especially if the exporter refuses to co-operate.

In some cases, the exporter puts a mark-up on the freight amount.  According to SARS, only the actual freight amount paid or payable to the freight forwarder or shipping line in the country of export is deductible from the customs value.  In other words, SARS states that any amount paid or payable by the importer to the exporter, which is deemed to be over and above the actual freight amount paid or payable to the freight forwarder or shipping line, must be included in the customs value.

Importers must advise their suppliers of the stance that SARS takes, and ensure that they are provided with the correct documents evidencing the actual freight amount paid by the supplier and compliant invoices that provide a breakdown of the charges and any discounts, if applicable.