If you operate as a bonded facility – whether OS, SOS or manufacturing warehouse or the like within the Customs and Excise space, then this alert is for you. Recent draconian interventions by SARS have shown that if SARS decides that the security is insufficient, this may have detrimental consequences for your business operations and any logistical operations associated thereto.

It is a legislative requirement that in order to license any bonded warehouse with SARS, such a facility must be licensed with SARS and as part of the licensing process, the licensee must furnish SARS with security in the form of a guarantee (bond) either from a bank or an approved financial institution. The purpose of the guarantee is for the guarantor to make payment of any debt due to SARS by the licensee. What happens when the amount of the debt exceeds the guarantee? This aspect has recently come under scrutiny by SARS, resulting in many bonded facilities facing unexpected compliance pressure and, in some instances, a halt in operations.

If you haven’t reviewed your security threshold for over a one-year period, it is imperative that accurate inventory management system reports be generated, and an assessment be conducted to ascertain whether the required level of security is still sufficient, and if not, an application must be submitted to SARS for the adjustment of the bond amount. SARS is embarking on a project focusing on this very issue, which could see your operations impacted, resulting in unforeseen financial losses and an impact on the continuation of trade. For the logistics and supply chain sector, this is any entity’s worst nightmare. We have been privy to numerous Customs detentions at various borders across the country in relation to this issue. The ripple effect on customers and businesses results in lasting adverse consequences. But the good news is that there is light at the end of the warehouse tunnel…

Sections 60 and 61 of the Customs and Excise Act 91 of 1964, as amended (“the Act”), read with Rule 60.02(d) thereto, regulate the determination and revision of warehouse security. Properly interpreted, this process requires compliance with section 33 of the Constitution read with section 3 of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”).

The security amount should only cover commodities or materials that are dutiable; the amount should exclude any duty-free commodities or materials, save for the VAT liability portion. This is what the SARS Bond Policy provides.

The general rule is that the bond amount must cover the duties/levies and taxes on all goods that will be stored in the licensed warehouse, calculated based on a one (1) month average of the duties/levies and taxes calculated over a twelve (12) month period. SARS may, however:

• Request the full assessed amount;
• A portion thereof; or
• Waive the requirement for security, in exceptional circumstances.

A relevant consideration in relation to the amount of security levied is whether the entity in question is an Authorised Economic Operator (“AEO”). If so, this can result in the security required being reduced, based on the circumstances of each matter.

Warehouse licensees are therefore strongly urged to review their security values against their latest inventory records and, where necessary, immediately apply for the upliftment thereof, if this has not been done for more than 12 months.

Therefore, review your warehouse security threshold before SARS does!