Driving compliance and value in the automotive industry

The automotive industry is one of the most complex industries when dealing with customs and trade compliance, especially when adding in incentive regimes such as the Automotive Production and Development Programme (“the APDP”). Many organisations operating in this space tend to view compliance as costly and burdensome, overlooking the significant benefits that can be derived from the industry. However, it requires proper compliance configuration.

Failure to ensure that the setup of processes is robust and well-controlled, often results in costly disputes with industry regulators such as the South Africa Revenue Services (“SARS”), International Trade Administration Commission of South Africa (“ITAC”) and the specification requirements of the National Regulator of Compulsory Specifications (“NRCS”).

In recent years, the regulators have adopted a decisive and uncompromising stance to ensure industry complies, not only with safety standards but also with legal requirements of the law, i.e., Customs and Excise Act, No. 91 of 1964, APDP Regulations etc.

Supplier Reviews

The question remains, how do OEMs and component manufacturers that are participants of the APDP ensure compliance whilst unlocking maximum benefits under the incentive regimes?

One frequently overlooked area is a comprehensive review of the entire supply chain, particularly OEM oversight of suppliers. This ensures that supplier declarations submitted on a quarterly basis meet all legal and regulatory requirements, while also confirming the accuracy of the data used to determine incentives, such as production incentives, volume assembly and localisation allowance. These figures ultimately have a direct impact on financial performance and reported liabilities.

Related Party Trade

An additional layer of complexity arises from periodic transfer pricing adjustments (“TPAs”) and licence fee arrangements that OEMs and component manufacturers must manage. While these may be relatively straightforward in other industries, within the automotive sector they are further complicated by the impact on APDP incentives.

For OEMs, TPAs can affect both current and future incentive calculations. The process of unwinding or reversing APDP benefits is often administratively intensive, placing additional pressure on organisations due to the number of customs accounts and regulatory disclosures that must be revised.

Tariffs and Rebates

Apart from managing the APDP, importers and distributors are often confronted with tariff classification issues relating to their aftermarket parts. The function of classification is often outsourced to customs brokers, neglecting the fact that the importer ultimately assumes the liability of incorrect classification. Reviews in this space often highlight inconsistencies, especially in situations where an OEM utilises several customs brokers. As such, it is imperative that OEMs review their classifications with changes in and amendments to the tariff structure in South Africa. This not only ensures compliance but mitigates against any misclassification issues that could result in time-consuming and often painful refund procedures.

Another area of concern is the use of temporary admission rebates. Whilst these rebates have a positive impact on the importer’s cash flow through the suspension of the customs duties and VAT at the time of importation, the documentary requirements are often overlooked.

Conclusion

The considerations outlined above represent only a portion of the complexities inherent in the automotive industry. Importantly, every custom or trade movement has a direct and measurable impact on potential incentives and duty liabilities.

BDO has a dedicated team with specialised industry expertise, capable of assisting organisations in strategically aligning their customs and APDP workstreams, as well as their broader supply chains. This includes reviewing compliance processes and, where appropriate, outsourcing administrative functions, all with the objective of unlocking tangible value while future-proofing operations against adverse audit findings.

When implemented effectively, these initiatives can deliver significant commercial value, while also providing a financial safeguard against costly penalties in an increasingly competitive and price-sensitive market.