Conduct of SADC Review

Report
THE SADC REVIEW OF
ILLICIT EXCISE TRADE
2010/11
LIZ ALLEN
July 2014
WHAT IS SADC?
 The Southern African Development Community
(SADC) is an inter-governmental organization
formed in 1980 with headquarters in Gaborone,
Botswana. www.SADC.int
 Its goal is to further socio-economic cooperation and
integration and political and security cooperation
among 15 Member States.
 The SADC Treaty sets out its aims which are
implemented through a series of Protocols supported
by a more detailed Regional Indicative Strategic
Development plan (RISDP).
SCOPE OF SADC
 Anti-corruption, firearms, health, education,
development and co-operation, strategic
planning and food security.
 In some areas, the aim is cooperation and
coordination e.g. Foreign policy.
 In trade and economic policy, a tighter
coordination is in progress with a view to
one day establishing a common market
with common regulatory institutions.
WHICH COUNTRIES ARE IN SADC?
 The Southern African Development Community consists
of:
Angola, Botswana, Democratic Republic of Congo
(DRC), Lesotho, Madagascar (suspended), Malawi,
Mauritius, Mozambique, Namibia, Seychelles, South
Africa, Swaziland, United Republic of Tanzania, Zambia
and Zimbabwe.
 Population size 2010 : 257, 726,000 (257.7 Million
inhabitants).
Gross Domestic Product (GDP) : 471,118 US$ billion
(471.1 US$ billion).
THE SADC REVIEW OF ILLICIT
EXCISE TRADE -2010/11
TERMS OF REFERENCE
Briefly:
“to evaluate the extent of and provide
recommendations for solutions for combating the
illicit trade in excisable products in the SADC region,
with particular emphasis on the illicit trade in
alcoholic beverages and tobacco products.”
BACKGROUND TO THE REVIEW
 SADC Secretariat commissioned the review at the
request of the SADC Tax Subcommittee.
 Study of over 6 months funded through the EU
in support of implementation of the SADC
Protocol on finance and Investment (FIP).
 FIP contains an Annex on regional tax
cooperation - including excise.
 Two Excise specialists recruited through
GFA/DNA covering both policy and administration
aspects.
STATUS OF THE REVIEW
 The study report including recommendations
was validated by the SADC Tax subcommittee
 The report has been released into the public
domain but SADC owns the intellectual rights to
all aspects of the study.
 I have a duty of confidentiality, but SADC has
authorised me to present to you as one of the
consultants engaged in the study.
CONDUCT OF THE REVIEW
 Questionnaire – designed and sent to all Member
States
 Inception – Research and planning selection of
countries to visit, detailed itinerary requirements
 Country Visits to:
 SOUTH AFRICA
 ZIMBABWE
 NAMIBIA
 SWAZILAND
 ZAMBIA
 MOZAMBIQUE
FINDINGS - CIGARETTES
 Illicit trade in cigarettes is a significant
problem resulting in considerable leakage of tax
revenue across SADC potentially a minimum of
approximately US$350 million a year
 The amount of revenue leakage for cigarettes in
South Africa alone is estimated at US$323
million.
ESTIMATES (BY INDUSTRY) OF ILLICIT
TRADE IN OTHER COUNTRIES VISITED
Cigarettes
 12% to 15% of total consumption in Namibia
 10% to 13% of total consumption in Zambia
 10% to 12% of total consumption in Swaziland
 1% to 2% of total consumption in Mozambique
 Minimal proportion in Zimbabwe
NATURE OF ILLICIT TRADE SADC
Cigarettes
 Main source countries in region are Zimbabwe and,
to a lesser extent, South Africa, Mozambique and
Malawi.
 Some counterfeit and contraband from Dubai and
counterfeit from China (reduced since World Cup
2010
 Destination country – mainly South Africa but illicit
cigarettes find their way into all countries
 Transit countries – Namibia, Botswana, Swaziland,
Mozambique, Zambia, Tanzania.
FINDINGS - ALCOHOL
 Illicit trade in alcohol for most of the countries
visited is a significant problem resulting in
considerable leakage of tax revenue across SADC
potentially a minimum of approximately US$115
million a year.
 The amount of revenue leakage for alcohol in South
Africa alone was estimated at about US$96 million.
12
ESTIMATES (BY INDUSTRY) OF ILLICIT
TRADE IN OTHER COUNTRIES VISITED
Alcohol
 Swaziland - no estimate available - one importer
estimated legitimate sales had decreased by 40% in
2010.
 Mozambique - estimate 50% of nationally produced
spirits and over 50% of imported spirits are illicit.
 Namibia - industry’s rough estimate was “less than
10%” illicit but growing.
 Zambia - unofficial estimate of excise loss of about
K15bn a year (over $3 million) excluding opaque beer.
 Zimbabwe - industry estimate of illicit alcohol was
between 100,000 and 150,000 litres a month and
growing.
13
NATURE OF ILLICIT TRADE
Alcohol
 Source countries for finished products - South
Africa and Europe (via South Africa and Namibia),
Mozambique and Zambia.
 Source countries for bulk spirits - S. Africa,
Swaziland, Zimbabwe and Malawi.
 Destination countries for finished products Mozambique and Zambia. Particular concern small plastic sachets of fruit-flavoured high strength
spirits and small plastic bottles of spirits.
14
COUNTER MEASURES
Good Practice
 South Africa – tax policy, action plans to combat illicit trade,
modernization programme , partnerships with industry,
comprehensive anti-corruption strategy.
 Zimbabwe – clear and stable organisation, professional training
centre and effective Mutual Assistance enquiries handling.
 Namibia – investment in scanners, commitment and enthusiasm .
 Swaziland – comprehensive plan to transform excise & customs.
 Zambia – profession and national approach to excise control and
comprehensive anti-corruption strategy and supporting activities.
 Mozambique – clear structure, strong organisation & focus on
customs enforcement, investment in scanners, successful mutual
assistance and international co-operation efforts.
AREAS FOR IMPROVEMENT
 A strategic approach to tackling the illicit trade in alcohol and
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tobacco products is needed including:
Zero-tolerance of corruption
A balanced evidence based tax policy leading to specific duty
structure and potential tax harmonisation
Reliable and complete data
Understand the size and nature of the enemy
Targeted enforcement strategy and action plans across all
enforcement agencies
Implement regional customs transit system
Investment in one-stop-border posts, training, more scanners, sniffer
dogs and better examination facilities
AREAS FOR IMPROVEMENT
Continued
 Clear, straightforward and appropriate excise
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administration policies and legislation
Appropriate offences, penalties and a judiciary aware of
the seriousness of excise fraud and smuggling
A national professional focus on excise control
Supply chain controls on products and on wholesale and
retail outlets
E-filing and inclusion of excise in modernisation
programmes
Raise capacity and capability of officials
Mutual assistance between Member States
RECOMMENDATIONS
A SADC Strategy to Tackle Illicit Trade to
overarch Member States individual strategic
programmes.
1. Move towards a harmonised approach to
excise taxation.
2. Co-ordination and support for better control
and enforcement (through the SADC Tax SubCommittee).
3. Capability building
18
A HARMONISED APPROACH
SADC should  Fast track the development of excise guidelines;
 Promote the concept that the ability to
manufacture, warehouse or move excise goods
under bond should be a privilege not a right;
 Develop a SADC wide requirement for excise
specific licensing of all transporters of excise goods
under bond; and
 Develop a regional requirement for excise
producers to hold bonds/financial security sufficient
to cover revenue at risk.
19
HARMONISED APPROACH Contd.
 Develop and promote adherence to a strict Code of
Ethics for all Customs and Revenue officials;
 Facilitate agreement of a long term phased plan for
all Member States to move from ad valorem to
specific rates of tax for excise products; and
 Provide Member States with support in adapting
administration and controls.
20
CO-ORDINATION AND SUPPORT FOR
BETTER CONTROL AND ENFORCEMENT
Through the SADC Tax Sub-Committee/Indirect Tax
Working Group, SADC should:
 Set up a permanent Excise Working Group;
 Facilitate the identification by Member States of the
most useful data to collect to support policy evaluation
and effective control and enforcement;
 Maintain and analyse the regional database and
compare the product quantity gap with the size of the
illicit trade estimated in each Member State;
 Set up a regional forum with the alcohol and tobacco
industry representatives specifically to tackle illicit trade.
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CO-ORDINATION AND SUPPORT FOR
BETTER CONTROL AND ENFORCEMENT
 Promote a consistent regional approach to the
implementation of standards required for the track
and trace component of the FCTC;
 Facilitate the speedy introduction of the proposed
SADC Community Transit System;
 Facilitate the moves to one-stop-shop border
posts supported by scanners and facilities for
examining tankers at key points in the region;
 Facilitate the development of a regional approach
to control of the wholesale and retail supply chain
for alcohol and tobacco products;
22
CO-ORDINATION AND SUPPORT FOR
BETTER CONTROL AND ENFORCEMENT
 Fast-track the implementation of the recently
signed SADC Agreement on Assistance in Tax
Matters (AATM) and develop effective
administrative procedures to support control and
enforcement.
 Under the AATM, set up an early project to enable
speedy electronic access to data on all excise
operators, bonded warehouses and licensed excise
transporters by enforcement and excise staff in
Member States.
23
REGIONAL EXCISE GUIDELINES
 Common Tax Structure/Definitions/Bandings
 Exemptions/Reliefs
 Specific Tax Structure for Tobacco Products
 Tax Point/Bonded Warehouse Facilities
 Registration/Licensing of Excise Operators
 Register of Excise Operators and Access to data
 Powers, Offences and Penalties
 Capacity building including specialist excise
training and guidance
WHAT NEXT?
 SADC Excise Working Group set up 2011.
 Work commenced on developing guidelines for the
coordination of excise taxes in the SADC Region in
December 2011. A major and ambitious undertaking.
 First draft produced in March 2012 .
 Second more detailed draft scheduled for December
2014.
 Status reported to the SADC Ministers of Finance at
regular intervals.
 Future work might include implementation guidelines for
the Illicit Trade Protocol.
SEND QUERIES TO:
Ms Leefa Penehupifo Martin, CPRP, ndp (zw) btech (SA) MA (Uk) Head: Public Relations Unit,
Office DGP31 Ground Floor, SADC Headquarters
Plot 54385 CBD, Private Bag 0095
Gaborone, Botswana
 Tel: + 267 395 1863 (Extn 1084)

: + 267 3611084 (Dir Dialing)

: + 267 3181293 Dir
 Cel: + 267 73831177
 Fax: + 267 397 2848/3281070
 Email: [email protected]
 Website: www.sadc.int
THANK YOU

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