KEYNOTE ADDRESS BY SARS COMMISSIONER, EDWARD KIESWETTER

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FIATA WORLD CONGRESS 2019

Members and Leadership of FIATA and SAAFF, representatives of freight forwarding and logistics firms from around the globe, my fellow Customs and Government colleagues, Ladies and Gentlemen, good morning, and welcome to the 2019 FIATA Congress. Welcome to the beautiful Cape Town, our mother city and also the city of my birth.

A special acknowledgement to FIATA Global President Mr. Babar Badat, SAAFF Chair, Mr. Basil Petersen, as well as Mr Dave Logan, SAAFF Chief Executive. Thank you for including us in this event. It is a privilege to share my thoughts with you, a global audience, this morning.

In preparing for this address, I went onto the SAAFF website. I read:

“SAAFF encourages the highest level of moral and ethical conduct of its members.
As freight forwarders and customs clearing agents, the services provided by
members impact greatly on the success or otherwise of their client’s shipments,
correctly completed declarations and documents, transit times, accurate payments to
third parties, and a host of other factors within the international supply chain. To this
end, members are required to accept and abide by a Code of Ethical Conduct, to
sign a certificate confirming this, and to display prominently a copy of such certificate
in a public area of every office where they trade.”

FIATA’s according to their website sets as its main objectives:

  • to unite the freight forwarding industry worldwide
  • to represent, promote and protect the interests of the industry by participating as advisors or experts in meetings of international bodies dealing with transportation.
  • to familiarise trade and industry and the public at large with the services rendered by freight forwarders through the dissemination of information, distribution of publications, etc.
  • to improve the quality of services rendered by freight forwarders by developing and promoting uniform forwarding documents, standard trading conditions, etc.
  • to assist with vocational training for freight forwarders, liability insurance problems, tools for electronic commerce including electronic data interchange (EDI) and barcode.

These are necessary objectives and standards which the industry should as a minimum uphold. But I would humbly submit that in order to thrive, it is necessary to elevate the internal dialogue beyond the narrow interest of its members to a higher societal purpose. I propose that unless we speak about the common purpose we ultimately serve, we will all struggle to survive in a world that is rapidly changing and in many ways militating against us.

The landscape in which we find ourselves has become increasingly complexed and challenging. In this address I cannot fully expand on these, but briefly wish to point out:

  • Our economic growth has a huge dependency on international trade volumes. World trade continues to struggle with little prospect of change for the next year or two. We have seen slower than expected growth in 2018 due to rising trade tensions and increased economic uncertainty. Generally economic commentators expect trade volume growth to fall to further in 2019 — the WTO predicts 2.6% decline, down from the 3.0% in 2018. Any growth however, is dependent on an easing of trade tensions.
  • The current tensions invariably hurt the smaller economies.
  • Technology driven, disruptive innovation has given rise to unprecedented business models and trade value chains, which has introduced significant complexity to cross border trade flows.
  • Sadly the risks that comes with modernisation is characterised by an increase in organised crime and security related threats, with a proliferation in fraudulent practices such as illicit trade, smuggling, under-invoicing, tariff misclassification, to name a few.
  • Factors such as virtual borders, growing trade between connected parties, and questionable morality by intermediaries pose material risks to revenue authorities, such as ourselves and have increased exponentially with increased threats to the collection of duties and taxes through blatant evasion and
    aggressive avoidance. This also has significant downstream negative implications for the erosion of our domestic economies through the distortion of the integrity of the economic factors for fair competition.
  • The South African Government, like other governments, is charged with the challenges of creating the conditions for economic growth and promoting social development to address the stubborn prevalence of poverty, unemployment and inequality. In this regard it has to facilitate trade with international partners and countries. At the same time, Government has to provide adequate protection of our borders, as well as securing and protecting its citizens from the entry of unsafe and high risk consumer products, food and medicines from unscrupulous players.

This requires the fine balance between Service and Trade Facilitation, on the one hand, and stringent Enforcement of compliance on the other by the South African Revenue Service.

But we cannot do it alone. We are either partners or adversaries of each other. We cannot be a hybrid schizophrenia with ambiguity about how we work with one another, and most importantly, to what common purpose do we serve.

Let me start with SARS.

We are clear about our Higher Purpose:

SARS exists to:

“Enable Government to build a democratic state that fosters sustainable economic growth and social development in the interest and well-being of all South Africans.”

Our work has a human face. Given our history, this is often the face of an African granny taking care of an extended family, a single mother who is unemployed taking care of her children. A little boy or girl is able to go to school in a village. These are the beneficiaries of the work we do.

We have a simple approach to our work. Need to balance the forces that interplay continuously in our collective space. We balance the management of our customs mandate to collect taxes, whilst facilitating trade across our borders and protect our domestic economy from unlawful arbitrage by fraudulent imports. To maintain this balance, we follow the three important principles of our compliance model.

  • Provide Clarity and Certainty to stakeholders of their obligation in law;
  • To make it easy, simple and eventually seamless for those who choose to comply; as well as partnering with, and placing more reliance on the controls of compliant intermediaries; BUT equally
  • To create a credible threat of detection and make it hard and costly for those who choose not to comply.

But to achieve the above, and maintain the appropriate balance between administering our revenue collection mandate and facilitating trade, we are therefore clear that we need to work with and through stakeholders such as yourselves in order to strengthen the entire ecosystem.

We also accept that we must work hard to gain your confidence and trust as a credible, professional and ethical Tax and Customs Administration.

Our current assessment indicates to us that we have a long way to go to build a credible partnership based on a common purpose and trust, as well as achieving the strategic intent of voluntary compliance within this important value chain where we find ourselves.

SARS and the local freight forwarding industry have a long history of mutual cooperation that was perhaps best illustrated during the 2009 – 2014 period of our Customs Modernisation Program.

During this time the interaction then between SARS and the Industry was raised beyond co-operation to a level of co-creation.

During the span of those five years SARS and its Customs stakeholders developed and deployed, in rapid succession, new technological functionalities which have subsequently become embedded within almost every importer’s, exporter’s, carrier’s, freight forwarders’ and customs brokers’ IT platforms. These electronic platforms form the nucleus around which Customs traders interface with SARS Customs today. We have sadly lost some of this momentum during the past five years.

We need to re-conceptualise this modernisation journey since the world has moved on. Emerging disruptive technology driven innovation compels us to go back to the drawing board. The risk environment has also deteriorated significantly. SARS hopes to complete our policy framework for Authorized Economic Operators in place by the end of this financial year, ready to pilot in the New Year.

Over the longer term, in order to fully implement our compliance model we need to build deep institutional capability in three important areas. Technology, as your congress them suggests, and big data are inescapable realities of our life.

Connectivity whether C2C, B2C, B2G or G2G, is no longer a luxury, but a critical aspect of our future. To the logistics industry it represents both opportunities and challenges.

1. As SARS we are expanding and improving the use of data through:

  • third party data with unquestionable integrity from all intermediaries which will allow us to do:
  • better risk profiling, use of machine learning and artificial intelligence more accurate case selection
  • higher levels of facilitation for honest taxpayers
  • degree of self-regulation for intermediaries
  • overall better outcomes for honest brokers

BUT

  • increased visibility of fraudulent declarations
  • Harsher penalties for those who choose to defraud the system

In this regard, we need to simplify our data requirements and improve our platforms for verifying and exchanging data. We already have various cooperation agreements with various countries of origin, but have to implement these more diligently. We still find too many examples of information asymmetry between ourselves and our major trading partners like China and India.

Valuation remains a challenge for us, and we are working hard along with our Trade, Industry and Competitions Minister, EB Patel. The extent of blatant invoicing fraud is a significant area of focus. It is inconceivable that we are expected to believe that a man’s woven suit from China costs R17.50 or a woman’s knitted dress costs R2.46. Equally, that a woman’s knitted pajamas from India would cost 10c and a man’s suit R7.67. In response, we have no option but to be a lot more interventionist than what
we would like to be, but are left with little choice.

We have well established protocols with other government agencies such as the SARB and (ITAC) International Trade Administration Commission for information integration and processing, as well as extending our inter-connectivity with neighboring states in our common customs union, working to extend this to SADC and eventually the African Union. These are key developments ahead of the
implementation of the Free Trade Agreement.

2. We also need to use technology to provide digital streamlined services to enhance
our service and facilitation role, without compromising our revenue collection
mandate.

  • clear goods ahead of arrival at the port of entry
  • accredit economic operators who can be trusted
  • e-Filing with higher levels of automation with fewer manual interventions
  • cargo management system with real-time reporting
  • connected platforms, single version of the truth, across the entire value chain
  • seamless transition across the borders for honest taxpayers/ traders
  • frustrate traders who seek to defraud the system: deregister, flag as risk,

In this regard, trusted ledger applications such as block chain become essential to improve the integrity and outcomes across our value chains.

As a member of the World Customs Organization and signatory to the World Trade Organization Facilitation Agreement, SARS is committed to drive the principles of simplification and harmonisation across the value chain in our revitalised modernisation journey. The stated benefits are estimated to reduce trade costs by over 14% on average and boost global trade by up to $1 trillion per annum. Poor
countries are the biggest winners in this regard.

We are also ready, as a member of the WCO, to accept the challenges adopted by the WCO Council viz.: “Customs in the 21st Century” which has sets out the 10 building blocks of which a “Globally Networked Customs” is central. Unless we achieve the objective of closer, real-time connectivity between different Customs Authorities as well as Businesses and Intermediaries towards a system with integrity and lawful trade, we continue the race to the bottom, where the only winners will be the thugs and thieves who fleece the system at the expense of honest operators and eventually the poor and most vulnerable in society.

This month we are piloting a new MobiApp to enhance Customs case management for Customs officers across all inspection types – manual or systems based and allow better tracking for our clients.

3. We need to work harder to develop our staffing model and upskill our staff to the
future world of work. As we build a more enabling technology platform as well as
expanding and improving the use of data, artificial intelligence, predictive analytics
and machine learning, the work our people engage in must also evolve towards:

  • More strategic, analytical and knowledge work in the areas of valuation,
  • risk profiling, analytics, and investigative work
  • high service orientation to facilitate trade without compromising our mandate
  • professional, ethical and incorruptible officers at our ports of entry

We make the firm pronouncement that any party who seek to collude with our Customs official will find themselves on the wrong side of the law and face the direst consequences. We will not tolerate collusion of any kind.

Allow me to share another anecdote of what we find that characterises the compliance culture that we see. Our compliance rate for cargo reporting on RCG (reporting of conveyances and goods) is really weak. This is the system for sharing third parties corroborating data from intermediaries in the logistics supply chain including shipping lines, airlines and freight forwarders. We record a matching rate to
customs declarations of 53% for Sea cargo and 24% for air cargo. I am informed that for sea and air we are seeing good improvement, but freight forwarders are lagging behind. We are now considering either to stop all mismatched consignments (which will be more than 50%), in order to force compliance. The more acceptable alternative is penalty provisions commencing in December this year. We would
prefer higher levels of compliance though.

We recognise that the implementation of NCAP is more complex than originally thought. Many of you have expressed concerns specifically in relation to Registration, Licensing and Accreditation. We would like to express our commitment to simplify this currently manual and tedious process as part of our focus over the next 6-12 months. We hope to launch a restricted pilot during the last quarter of this
financial year. We would urge you in the meantime to improve the levels of compliance with your own submissions of cargo reports of conveyances and goods.

What is my key message today?

Our aim must be to strengthen the entire ecosystem of trade and the movement of goods. The ongoing pursuit, each of our own narrow interest, often mindlessly in defense of our own bottom line, we will simply increase the burden of compliance on all of us, and continue to erode value for all stakeholders across the value chain in the long run.

The time has come for a greater sense of stewardship. Organisations such as SAAFF and FIATA have an important leadership role to play in this regard.

I encourage you to reflect on the philosophical principle that indeed, as we focus on our collective good and common destiny, we invariably act in our own interest. Let’s never forget the human faces behind the work we do.

SARS remains committed to serve this higher purpose, and we invite all stakeholders to join us in this quest. For stakeholders active in the trade environment that will be fundamentally reshaped by emerging complexities, it is important to take advantage of the opportunities, as well as addressing the challenges, inherent in the area of customs and trade connectivity. Technology with all its potential, can only serve the purpose we define for it.

There is no reason why SARS and the Freight Forwarding Industry – represented locally by SAAFF – cannot embark on a new round of collaboration that is focused on increased connectivity and the use of digital technologies, applying the same “cocreation” approach that worked so well for us before, and in the interest, ultimately, of economic growth and the reduction of poverty – both domestically and in the region.

I invite you to work with us in embracing this common purpose and to achieve this dream not only to build better businesses, but as stewards of this industry, to substantively contribute to better and healthier societies.

Thank you very much.

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