The South African Revenue Service (SARS) has announced that it is still in the process of determining when to begin imposing a 45% tariff, in addition to VAT, on small, low-cost clothing imports from popular Chinese fast fashion retailers such as Shein and Temu. The move, aimed at curbing the flood of cheap imports into the South African market, is seen as a potential lifeline for the country’s struggling clothing industry. ( Jan Cronje; News24 Business)

Shein, which became the world’s largest fashion retailer as of 2022, and its competitor Temu, have both been paying duties of 20% or less on clothing packages under R500. These packages have enjoyed lower tariffs due to current import rules, which allow such items to be brought into South Africa with a 20% duty and no VAT. However, this has sparked concerns among local retailers and workers who argue that they cannot compete with the rock-bottom prices offered by these global giants.

 

With the new 45% tariff and VAT being imposed on small, low-cost clothing imports from retailers like Shein and Temu, the impact on consumers in terms of taxes will be significant. Here’s how it will affect them:

  • Higher Taxes on Imported Goods

Increased Import Tariffs: The new policy will impose a 45% tariff on clothing, textiles, and footwear imports costing R500 or less. This is a substantial increase from the current 20% (or less) duty that applies to these items. As a result, the final price that consumers pay will reflect this higher tariff.

VAT on Imports: In addition to the 45% tariff, consumers will also have to pay Value Added Tax (VAT) on these imports. VAT in South Africa is currently set at 15%, meaning that the total tax burden on a R500 item could rise sharply.

  • Total Tax Impact on a Purchase

Example Calculation: For an item costing R500:

Under the new regime, a 45% tariff would add R225.

VAT at 15% would then be calculated on the combined cost (R500 + R225 = R725), adding another R108.75.

The final cost to the consumer would be R833.75, meaning the total tax burden (tariff + VAT) would be R333.75, a significant increase from the original price.

  • Impact on Affordability

Reduction in Disposable Income: With the higher tariffs and VAT, consumers will need to allocate more of their budget to taxes when purchasing imported fashion items. This could reduce their disposable income for other goods and services.

Fewer Purchases: The higher costs could lead to a decrease in the number of items consumers are willing or able to purchase, particularly for lower-income consumers who are more sensitive to price increases.

  • Tax Compliance and Enforcement

Stricter Enforcement: With the new taxes, SARS may implement stricter monitoring and enforcement measures to ensure compliance. This could include closer scrutiny of imports, which might lead to delays in delivery or additional administrative steps for consumers.

Consumer Awareness: Consumers will need to be more aware of the tax implications when making purchases from international retailers. The final price they pay will now include these additional taxes, which might not be immediately clear when browsing items online.

  • Potential Shifts in Shopping Behaviour

Local vs. International Shopping: As the cost of imported goods rises due to higher taxes, consumers might consider shopping locally to avoid these additional charges. This could benefit local retailers who are not subject to the same import duties and VAT on domestic sales.

Alternative Retailers: Consumers might also explore other international retailers or platforms that offer different tax structures or exemptions, though this could come with risks and uncertainties regarding tax compliance.

  • Long-Term Impact on Tax Revenue

Increased Revenue for SARS: The higher tariffs and VAT could result in increased tax revenue for the South African government, which may be used to support local industries or other public services. However, if consumer demand for imported goods decreases significantly, the expected revenue increase might be lower than anticipated.

Potential for Tax Policy Adjustments: Depending on the economic impact, there could be future adjustments to tax policies if the government finds that the new tariffs are either too burdensome on consumers or not achieving the desired effect of protecting local industries.

In summary, the new tax regime will result in significantly higher costs for consumers purchasing low-cost fashion imports, driven by the 45% tariff and VAT. This will affect affordability, potentially reduce disposable income, and may shift consumer behaviour towards local alternatives or different international platforms.