New Customs Deal to Lighten Burden on South Africa

A new revenue-sharing arrangement within the Southern African Customs Union (Sacu) that is more sustainable than the present one should be ready for implementation in the 2011-12 fiscal year, Parliament was told yesterday.

The present redistributive formula, which places a heavy burden on SA, has been under review since 2006. It is seen as being too vulnerable to the volatile economic cycles that affect revenue-sharing forecasts and the budgets of member states.

The formula is also seen as encouraging too much dependency on customs revenue by smaller countries, namely Botswana, Lesotho, Namibia and Swaziland.

A large chunk of the total of their budget revenue comes from the revenue-sharing arrangements of the union, the oldest customs union in the world, which has been in existence since 1910.

SA is by far the biggest single contributor to the union payments, which have become an increasingly heavier burden for the fiscus.

In 2008-09, SA contributed R45bn to the common revenue pool, which represented 98% of the Sacu transfers, and received R22bn (46,5%).

The present formula distributes customs and excise revenue on the basis of forecasts reconciled against actual collections and intra-trade data.

The Treasury’s chief director of African economic integration, Neil Cole, told the standing committee on finance that negotiations on a new revenue-sharing formula should be finalised in December when the revenue shares of member countries were determined.

Mr Cole said care would have to be taken with its implementation, however, to prevent disruption to the budgets of Botswana, Lesotho, Namibia and Swaziland .

In terms of the proposals under discussion, each member state would receive what its economy produced, determined on the basis of its own collections, re-exports and duty drawbacks.

One proposal was that the revenue would be distributed as a forecast, which would be adjusted two years later on the basis of actual customs collections. Member states would contribute to a structural or development fund on the basis of a percentage of their gross domestic product.

Mr Cole said a new formula would have to have “a strong development thrust that supports regional infrastructure, lead(s) to greater transparency and parliamentary oversight, (and) support(s) the expansion of Sacu”.

Revenues are a function of the tariff book and are highly dependent on higher-import-tariff consumer goods, which are hit hard in a recession. Mr Cole said about half of all customs revenue came from consumer goods, including vehicles (29%), electrical goods, footwear, beverages and clothing.

On the other hand, there were no or low tariffs on capacity- building capital goods and most inputs. Mr Cole said the review was also considered necessary because SA believed that revenue considerations should not be the single driver of trade policy decisions. “A great deal of polarisation is caused by trade and revenue reconciliation.”
Source: http://bit.ly/drXjl4