Customs and excise is not a subject that is covered in the Tax syllabus at University in Bachelor of Commerce degrees even less rarely covered in professional journals. Once qualified and working as a Finance Director, Manager or even a Tax Manager, you are now for the first time confronted by customs and excise issues.
In the coming months, a series of articles will follow that are intended to provide a simplified overview of Customs and Excise in an easily understood manner. The series is aimed at helping businesses understand both the risks and potential savings opportunities in this often neglected area of taxation.
Going back in time: The history of Customs and Excise
Today, customs duties are taxes levied upon goods imported or exported from a country. Customs duty has, however, always formed one of the most important sources of public revenue in the development of civilisation.
It is assumed that the customs duty is called ‘customs’ in English because the duty was not granted to a king by any statute but passed on from one generation to another and formed part of common law.
In ancient times, customs duties were employed solely for the purposes of raising revenue. During the middle ages, ‘customs officers’ were placed at the gates of a city and controlled and collected duty of goods entering and leaving the city. The customs duties were kept as high as possible, but not so high that they would drive away trade.
It is estimated that the Romans started to collect customs duties as far back as 199 BC. These customs duties or portoria were collected on all types of goods, including slaves, which were imported by merchants for the purpose of selling them again. If goods subject to a duty were concealed and later discovered, the goods were then confiscated.
The rate of customs duty varied but the portorium in, for example, the ports of Sicily and Greece were one-twentieth of the value of any taxable goods. After the collapse of the Roman Empire, feudal lords and barons began collecting customs duty on transit goods passing through their territory. As a consequence, the rivers and highroads were lined with customs houses and tollgates. As the kings gradually overcame the influence of feudalism, the tollgates and customs houses remained thereby enabling the kings to raise national revenue for their kingdoms.
The most ancient customs impost in England consisted of fees paid by merchants for the privilege of using the king’s warehouses, weights and measures. Later on, King Edward I established a duty of sixpence in the pound upon all goods exported and imported, except wool, woolfells, leather and wines – which were subject to a special duty.
King Edward I also collected a hereditary customs on wool, skin and leather exported from England. The duties were paid by every merchant. However, foreign merchants paid an additional toll.
Different methods of levying duty
Over time, kings have used different methods of levying customs duty. Today there are two main methods, namely;
1. Specific Duty: these relate to a duty determined per unit of imported good. Specific duties prevent a reduction in revenue when the prices of imported goods fall. This type of duty is also often favoured for goods which have unstable prices.
2. Ad Valorem Duty: loosely translated this means ‘in proportion to the value’. This type pf duty provides the least protection when imported goods are inexpensive. Conversely, protection is greatest when the imported goods are expensive.
Generally, customs administrations prefer specific duties rather than ad valorem duties because of the difficulty in determining the correct value for ad valorem duty purposes.
In considering the long history of customs duty, it is evident that it would be exceedingly difficult for any customs administration to abolish the concept of customs duties.
Although the kinds of customs duties have not changed significantly over the years, the role of customs has changed. This role change includes a far greater emphasis on the facilitation of trade. Also, we no longer trade slaves. Although the Harmonized Commodity Description and Coding System (HS) of tariff nomenclature caters for every conceivable living being and type of good, it excludes human beings.
The shaping of future customs administrations will be a challenge as they move from their historic roles of primarily policing trade and collecting revenue to a modern day role of facilitating trade. This change in focus is bound to create tension between the revenue collection, enforcement and trade facilitation roles of customs officials. Clearly, modern day customs administrations will be required to be more adaptable and flexible to fulfil the global demands of businesses and governments.
In our next edition we will turn our focus to Customs and Excise in South Africa, including the role and status of the South African Customs Union.
Ronnie van Rooyen, is Senior Manager of Customs at Deloitte.