Cash flow allows an organisation to pursue opportunities that enhance value. This may indeed become tricky when importing the goods required to run a business becomes an expensive and complex process, including costs associated with moving the goods, as well as duties and taxes requiring payment once the goods have arrived and clearing required before collection. These activities can result in tied up cash leading to reduced efficiency.
For this reason, an importer may see the need to delay the payment of duties and taxes at point of destination in order to free up cash flow, resulting in the question of where to store the goods in the interim. The most ideal location would be a safe and protected place where the imported goods could be stored or worked on without the importer having to pay duty. This is what is referred to as a bonded warehouse.
A bonded warehouse is a secure area where goods can be stored, checked or undergo additional manufacturing, without the importer having to pay duties and taxes. In South Africa, imports may be kept in a bonded warehouse for up to two years. These warehouses can be government- or privately owned by organisations while bonded goods are retained until the customs duties are paid.
Such warehouses may be licensed either for the storage of dutiable goods (known as customs and excise warehouses) or for the manufacture of dutiable goods (known as customs and excise manufacturing warehouses). Although these warehouses are not owned by Customs, the goods stored here are stringently controlled by Customs.
Why Bonded warehouse?
It is common to find that the demand for the goods an organisation has imported may have changed and are no longer required at that specific time. The party an organisation intended to resell to may no longer want to buy the goods requiring the need to find another buyer. The goods could now be required to be re-exported or the goods may need to go through further manufacturing.
For these reasons a bonded warehouse would be most suitable solution providing the time and freedom to wait for deciding factors to change in the importers favour therefore withdrawing the goods only when they are required.
Benefits & shortcomings
The main benefit of bonded warehousing relates to cash flow in that it allows for the deferment of payment of duty and VAT until the goods are required, while avoiding duty costs on goods being re-exported, delaying payment of duty costs which gives importers time to gather funds and forgo payments on goods written off.
If goods are going to be exported, they can be warehoused and exported from bond without payment of duty. Except in the case of road exports, in this instance, a deposit is required to cover duty and the VAT must be lodged with Customs, to be refunded when upon proven exportation.
The main shortcoming of bonded warehousing is the risk of duty on certain goods being increased while the goods are in the warehouse.
What to take note of when considering storing your goods in a bonded warehouse
- The duty rate to be paid is the rate in force at the time of withdrawal (unless being re-exported) and not the rate that was applicable at the time of warehousing. If the duty is increased by Government during the time the goods are stored, the increase will apply. And the same is applicable if the duty is reduced, the lower rate will apply.
- Only dutiable goods may be warehoused, however, both duty and VAT is then deferred while in the warehouse.
- Goods on which VAT only is payable may not be placed in a Bonded Warehouse.
- If the Government removes duty from a certain product, the goods must be immediately removed from the warehouse and the VAT must be paid.
- All goods must be removed and duty paid after the two year period expires.
- No goods may be removed from the bonded warehouse without proper clearance and payment of duties and VAT
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