In recent weeks, this column explored the nature and intent of taxation on luxury (nonessential) goods, ‘sin goods’ (possibly rather ‘vices goods’), and a range of goods which, through its application and use, imposes an internal cost on others. In all instances, government, which imposes taxes, has the option to either impose a tax on additional goods (broadening the tax base) or increase the rate of taxation. The latter has to take into account the Laffer curve, which posits that increasing tax rates beyond a certain point will be counterproductive for raising further tax revenue.

The earlier columns highlighted the fact that the imposition of a tax has a twofold intention: to serve a fiscal (revenue generating) purpose or a behavioural change purpose. In South Africa’s instance, though government might contend that its imposed customs and excise taxes serve to alter or alter or correct behaviour, their true intention is revenue generation.

Either way, the imposition of a tax results in a tax liability to government, which means that someone has to pay the tax. But who? The options are, of course, that the producer has to absorb the tax, in part or in full, or pass the liability on to the consumer, in part or in full. The extent to which the producer would absorb or transfer the tax would depend on the elasticity of demand and the elasticity of supply of a good.

The process by which the tax burden is transferred from one party to another is generally referred to as the shifting of a tax. What I have stated above collectively results in the tax incidence, which considers the division of the tax burden between the producer and the consumer. An argument could be made, in the instance of customs and excise taxation, for the revenue authority to review its intention of who should be responsible for the tax burden, which, in South Africa, tends to be transferred to the consumer. In the instance of ‘sin goods’, it could be argued that the consumer is tempted into using a product that results in a recurring demand (an addition, if you will) for which the consumer ends up paying the substantive customs and excise taxation.

The instance of the taxation needs to be considered on the two categories of taxation, namely direct taxes and indirect taxes. In the instance of a direct tax, the impact and incidence is on the same person, the person on whom the tax is levied. There is no way in which this liability can be shifted. When government imposes an income tax on its citizens, then the respective citizens pay the tax. It is not possible for one taxpayer to transfer his or her tax liability, or burden, on to another taxpayer.

On the other hand, in the instance of an indirect tax, the impact and incidence are on different persons. Consider, for instance, the imposition of tax on cigarettes, where the customs and excise taxation is paid by the producer, but who, in turn, collects it from the consumer. To clarify, in South Africa, the tax imposed is called Duty at Source, or DAS, which means that the revenue authority would collect the tax revenue at the place of manufacture, the producer’s premises. So, the producer is liable for paying the tax revenue over to the revenue authority. Although the producer does so, it shifts that cost onto the consumer by increasing its selling price, so the consumer then essentially pays the tax.

Most international tax systems include both direct and indirect taxes. Direct taxes, as a rule, are imposed on income, property (residential and commercial), land and inheritance, while indirect taxes are mainly imposed on commodities. The intention of governments using both categories of taxes is that the one offsets the disadvantages of the other. In next week’s column, I will discuss the advantages of direct taxes, and of indirect taxes.

Draft Customs Duty Rules
On May 28, the South African Revenue Service (Sars) announced that the comment on its first batch of draft Customs Duty Rules to the Customs Duty Act, 2014 (Act No 30 of 2014) relating to chapters 1, 3 to 9 and 11 to 13, which was due by June 5, had been extended to June 19.

The 11 chapters titles are Interpretation, Application and Administration of this Act (Chapter 1); Payment of Duty, Penalties and Interest (Chapter 3); Refunds and Drawbacks (Chapter 4); Assessment of Duty (Chapter 5); Tariff Classification of Goods (Chapter 6); Valuation of Goods (Chapter 7); Origin (Chapter 8); Preferential Tariff Treatment of Goods (Chapter 9); Administrative Penalties (Chapter 11); Judicial Matters (Chapter 12); and Miscellaneous Matters (Chapter 13).

The obvious question is: Why is Chapter 8 not titled Origin of Goods?
It is not certain when the draft customs rules for chapters 2 and 10 will be published.

HS2017/HS 2012 Correlation Tables
Just a reminder – the onus is on you to compare and prepare for the introduction of the World Customs Organisation (WCO) Harmonised System (HS) 2017. As mentioned in earlier columns, the WCO published two tables (I and II) which will serve to assist you in this endeavour.

Sugar Customs Duty
On May 29, Sars informed of the increase in all the rates of customs duty on sugar, classifiable under tariff subheadings 1701.12, 1701.13, 1701.14, 1701.91 and 1701.99, to 242.6c/kg. The tariff amendments were in terms of the existing variable tariff formula. The increase relates to beet sugar, can sugar and other types of sugar.

Refund on Spirituous Beverages
On May 29, Sars informed of the amendment of Part 1D of Schedule No 6 to the Customs and Excise Act to provide for a refund on spirituous beverages which have become off-specification, have been contaminated or have undergone post- manufacturing deterioration.

Motor Vehicle Components
On May 29, Sars informed of the substitution of Note 5 to Chapter 98 of Schedule No 1 Part 1 to the 1964 Customs and Excise Act – ordinary customs duty – concerning original-equipment components for certain motor vehicles.