How do Customs Procedure ‘Codes’ work?

            Customs Procedure Codes (CPC) consist of three parts. The first part is the Procedure “Category” Code (PCC), for example:

Category Description
A Home Use Procedure
B National and International Transit
C Transhipment Procedure
D Temporary Admission
E Warehousing Procedure
F Stores Procedure
G Tax Free Shops Procedure
H Export Procedure
I Temporary Export and Re-Importation
J Inward Processing Procedure
K Processing for Home Use
L Outward Processing Procedure

            The second part of the code is the Requested Procedure Code (RPC). This is the “Purpose” of the Customs declaration (examples to follow).

            The third part of the code is the Previous Procedure Code (PPC). This is the code of the “Previous” Customs declaration used in the movement of goods under Customs control.

“But don’t worry too much about the acronyms…”

            But don’t worry too much about the acronyms namely PCC, RPC and PPC. Your only real objective is to have a broad understanding of how the CPC and their intended use works. Here is an example of the three parts of a code for A11.00 (Home Use of goods, on imported goods):

Procedure Category Requested Procedure  Previous Procedure
A 11* 00
Home Use Home use on goods, of imported goods None

*The “1”  series generally means Home Use goods

In this example, the Previous Procedure is “00”. Whenever you see a “00”, it means that there was no Previous Procedure. In other words, there was no previous Customs clearance for the goods being cleared.

            Taking this example further, if you had cleared the goods directly into a bonded warehouse (E – Warehouse Procedure), and you subsequently cleared the goods out of the warehouse as Home Use goods (A – Home Use Procedure), the codes would look as follows:

  Procedure Category Requested Procedure  Previous Procedure
First Clearance E 40* 00
Ware-housing Clearance of imported goods into a customs warehouse under the Warehousing procedure None
Second Clearance A 11 40*
Home Use Home Use of goods… …previously placed under the Warehousing procedure

*The “4”  series generally means Warehouse goods

Notice the “40” in each of the two codes. In the first clearance, the “40” (because of its centre position) means that the goods are being placed into a bonded warehouse. In the second clearance the “40” (now at the end position) means that the goods are being taken out of the bonded warehouse where they were initially cleared. The “11”, which now takes precedence in the centre position, means that the goods are being cleared for Home Use. One needs to have an understanding of how the codes work and how the positioning of the codes affect the status of goods.

            For those accustomed to the traditional Purpose Codes, the first clearance (E40.00) would be WH (Warehouse) and the second clearance (A11.40) an XDP (Ex Duty Paid).

            In terms of the Customs clearance declaration, the Procedure Category is cleared at header level. The remainder of the code is cleared at line level.

            For a full list of codes visit the SARS website http://www.sars.gov.za and search for “Customs Procedure Poster” under the link “Find A Publication” on the home page.

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What Are Customs Procedure Codes?

            Customs Procedure Codes (CPC) are not easily explained yet, how they work is fairly simple.

            “Procedure” Codes replace the old “Purpose” Codes. The codes follow a common format and common set of rules which all parties can follow. They are designed to indicate the “Purpose” of an import or export Customs declaration. For example, if you intend importing goods for domestic consumption in a free market environment (i.e. free movement of goods), we term this as Duty Paid (Code DP) goods. In the new Customs Acts the corresponding CPC is Home Use (Code A11.00) goods. The tax status of such goods (in this example) is that duty and VAT will be paid upon clearance for importation. Here are some examples of the old Purpose Codes (for imports):

Code

Description

DP

Duty Paid

IR

Industrial Rebate

WH

Warehouse

XDP

Ex Duty Paid

RIB

Removal In Bond

Here are the corresponding new CPC (for imports):

Old Code

New CPC

New Description

DP

A11.00

Home Use of goods, on imported goods

IR

K85.00

Placement of goods under the ‘Processing for Home Use’ procedure

WH

E40.00

Clearance of imported goods into a customs warehouse under the ‘Warehousing’ procedure

XDP

A11.40

Home Use’ of goods, previously placed under the ‘Warehousing’ procedure

RIB

B20.00

National Transit of goods ‘removed in bond’ from port/place of arrival, to place of destination inside the Republic, or a bonded warehouse in a BLNS* country

*BLNS (Botswana, Lesotho, Namibia and Swaziland)

            The coding and wording of the CPC can be a bit confusing at first. I will explain these in more detail as I continue blogging.

            The CPC (the coding) is designed to follow the Customs supply chain in a way that links different movement procedures together; for Customs control purposes. It provides the Customs authorities with the ability to manage the supply chain using a systems approach.

            Importers and exporters use the CPC on the Customs Clearing Instructions to guide their Customs Clearing Agents. Customs Clearing Agents in turn use the CPC (as instructed by their clients) on the Customs Clearance Declaration forms (i.e. the SAD 500).

            In summary, the Tax Status of goods, including the Customs obligations and liabilities of parties during the movement of goods can be determined by understanding the Customs Procedure Codes.

Invoices for Postal Clearances

          I have seeing countless private individuals on the short end of the stick when it comes to postal clearances. Just stand at the receiving counter of any post office where foreign parcels are received. You will hear the horror expressed by mostly elderly people who have to pay excessive duties and Vat for parcels sent as gifts from abroad.  

The same often applies to companies (small companies especially) who do not anticipate the rates of duty and Vat payable for postal clearances.

          The consignor is responsible for completing the small declaration which is affixed to the outside of the parcel upon dispatch. If the value of the goods are not declared on it or if no invoice accompanies the parcel, then Customs need to improvise. And yes, they often get this wrong. Declaring inflated values for insurance purposes may also sway Customs toward higher values, leaving you at the short end of the stick when it comes to valuation.

          The Customs Officers at international postal centres are also responsible for tariffing the articles. They are responsible for determining the rates of duty and Vat applicable. If the product descriptions are insufficient, then Customs Officers will most likely use a tariff with higher rates of duty. Twenty percent is a good default rate.

          In addition, most people do not understand how the rates of duty and especially Vat are calculated. They are not aware of the hidden 10% inflation on the Customs value when calculating Vat. Ignorance will leave one with surprise.

          Anyone wishing to appeal the amounts payable must first pay for the parcel to be sent back to the Customs Assessment Centre where the decision was made. This too is a financially counterproductive exercise.

          The best advice I have for sending postal articles is to ensure that the sender includes the commercial invoice with adequate descriptions on the parcel, and to mark the declaration accordingly. Better yet, don’t bother with parcel post if it can be avoided.

Invoice as a Certificate of Origin

          There have being allot of rumors regarding the applicability of a COO (Certificate of Origin) form over the past few years. Some say that SARS have done away with the need to produce a DA 59 (the form traditionally used to as a COO).  

          But first, a generic COO form is different from an “origin certificate” related to trade agreements, i.e. EUR1 Form, SADC Certificate, and so forth. I have often seeing people confuse a COO form for a EUR1 certificate, thereby using it to benefit from a preferential rate of duty when not entitled to such. This is a classical mistake because the COO forms issued by some foreign Chambers of Commerce look similar to those used in trade agreements. The secret is to read what the respective form actually stands for, i.e. EUR1 versus Certificate of Origin. Do not take the look of the form for granted.

          The SARS DA 59 or COO does in fact still exist and is still in use. My understanding of what happened which led to the confusion regarding the use of the DA 59 came when SARS published a SOP (Standard Operating Procedure) containing minimum Invoice Requirements (the most recent revision is number SC-CF-30 dated 31 March 2011). The SARS SOP states that the “country of origin” must be reflected on the commercial invoice as a minimum requirement. Therefore, in industry circles it became generally accepted that the origin of goods may be specified on the invoice in lieu of a DA 59.

          In some ways, the invoice can be regarded as a certificate of origin, although SARS do still reserve the right to verify the authenticity of origins.

          In specific instances, the DA 59 Form may still be requested by SARS in order to verify such things as anti-dumping, safeguarding and countervailing duties, and import restrictions.

Invoice Discounts

          Most small discounts of a few percentage points may be acceptable to SARS when clearing goods through Customs. The problem arises when the discounted amount is excessive.

          Naturally, the Customs legislation requires that any / all discounts must be reflected on the commercial invoice. The nature or type of discount must also be reflected on the invoice, i.e. 5% discount for advance payment.

          Determining whether the percentage of discount is excessive or not, requires knowledge of one’s industry. Anything outside of industry norms will be regarded as excessive. In any event, any discount of more than 2 – 5% will likely result in a Customs valuation investigation of some sort. The Customs intervention of discounts is important for:

·         Determining if duty and Vat is being avoided

·         Anti-competitive behavior affecting the domestic economy

·         Generally protecting the domestic economy

Unfair competition normally arises when the buyer and seller are related to one another, and if such a relationship is restrictive in any way or form. In other words, if the relationship restricts other parties in the importing country from benefiting from the same discount.

          The type of discount being offered, and when the discount was offered will also affect the applicability of the discount in the Customs valuation. Generally, discounts must have being offered and applied prior to the shipment being dispatched. In other words, the discount must have being an element in fixing the price. Also, the consignee must have earned the discount legitimately.

          The SARS Policy SC-CR-A-05 dated 24 January 2014 titled Method 1 Valuation on Imports provides an array of important information regarding discounts. If in doubt, this policy should be consulted in depth.

          In the same vein, any commissions, royalties, kickbacks and the like must also be reflected on the commercial invoice.