South Africa’s e-commerce and clothing retail sectors are “puzzled and surprised” by the delay in the South African Revenue Service (SARS) implementing higher import taxes on smaller clothing items bought from international online shopping retailers.
From 1 July, SARS was expected to commit to taxing clothing items manufactured internationally and bought from international e-tailers, such as Temu and Shein, in small quantities (under R500) at the same rate as large quantities (R500 and above).
An import duty of 45% plus value-added tax (VAT) was to be applied to such purchases from last month.
In an e-mail to ITWeb, SARS says it is still engaging industry stakeholders and it has not yet set a date for imposing the 45% tariffs, plus VAT.
The new “lifting of the concession” rule comes as SARS looks to impose measures to ensure local firms manufacturing or selling locally-produced clothing items can compete on a fair basis with global online retailers.
The concession, which was introduced in 2007, aimed to deal with the import of “low-value goods” where individual consignments of less than R500 are submitted on a single entry.
The concession applies flat rate customs duties of 20% of the value of the goods (20%) on the declared value of the air cargo container(s) imported.
Alastair Tempest, CEO of Ecommerce Forum South Africa (EFSA), explains: “We are puzzled and surprised [by the delay], particularly when we read that SARS estimates that it has lost R3.5 billion from the present flat rate customs duties arrangement.
“Meanwhile, ‘ultra-fast fashion’ clothes are being imported into SA with 20% duty paid, instead of 45%. Furthermore, no VAT is being charged to customers. This makes a substantial price difference.”
According to Tempest, online and offline retailers are experiencing unfair competition on price and the full application of relevant laws. In addition, some e-tailers that import Chinese goods into SA currently pay the full customs duties and charge VAT to their customers. These companies are being hard hit by the present situation, he adds.
“We have members who have lost over 20% in sales since January. In a market where profit margins are very tight, SA businesses are being forced to lay off staff. There is an inevitable ripple effect throughout the e-commerce chain – from the merchants themselves, to the logistics/delivery, the payment services, the warehousing, etc. In addition to solving the customs duty issues, we believe the solution must include a rule that any company importing more than a certain amount into SA has to be registered at the CIPC [Companies and Intellectual Property Commission],” he states.
Tempest believes that once this rule is applied, it would ensure any foreign entity has to register for VAT, just like any other local company.
ITWeb previously reported on the frustration felt by local clothing retailers, which accused global online sites of offering “unreasonably cheap” prices, with some saying their sales have declined by almost 30% from the beginning of the year, when Temu made its debut in SA.
The Southern African Clothing and Textile Workers Union and National Clothing Retail Federation have over the past two years been complaining to the Department of Trade, Industry and Competition about Shein’s alleged tax aversion tactics.
In March, the department opened an investigation into Shein’s practices; however, it told ITWeb that the findings have not yet been released.
Michael Lawrence, executive director of the National Clothing Retail Federation (NCRF), which represents SA’s major clothing retailers, tells ITWeb the concession is a legal framework that is no longer fit for purpose in today’s digital age. The delay in lifting it means SARS is essentially supporting global e-commerce businesses that are rivals to local counterparts.
“SARS is not talking to anyone in any constructive manner, and they are certainly not talking to our industry that is paying tens of billions of rands in taxes every year.
“I would expect SARS to come and talk to us and say these are the challenges that we are facing, when it comes to reversing this concession. They could make us understand by saying, for instance, they need more IT people, or there is a hardware challenge associated with making the changes. They should tell us what they need and see to what extent we are able to have a proper appreciation that there is a substantive problem,” comments Lawrence.
All NCRF members have expressed concerns about the non-level playing field disruption from global e-tailers having a significant impact on their businesses, he adds.
“This has been going on for several years, it’s not just now. And once the customer is gone, retailers lose the customer into the future. Competition is going to happen in a number of different ways and we are not against competition, because it’s good for the entire value chain.
“But we believe the consumer is entitled to protection and offshore players must subscribe to the consumer protection laws. The consumer should know how the fabric is manufactured and the working conditions of those factories where goods are manufactured.”
Temu and Shein did not respond to ITWeb’s queries regarding the matter.
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