Currently, imported clothing packages worth over R500 face a 45 per cent import duty plus 15 per cent VAT, whereas parcels below this amount are charged about 20 per cent import duty and no VAT.

The government aims to level the playing field for local retailers by taxing clothing items bought from international e-commerce retailers and packaged in small quantities at the same rate as larger quantities. Concerns have been raised about Chinese high fashion e-commerce platforms, such as Temu and Shein, exploiting tax loopholes by shipping products in small quantities to benefit from lower import duties, according to local media reports.

Michael J Lawrence, executive director of the National Clothing Retail Federation (NCRF) of South Africa, exclusively spoke to Fibre2Fashion regarding the new regulations. He explained that the imposition of the 45 per cent VAT on packages under R500 addresses a long-standing oversight. Decades ago, the revenue system found it cumbersome to calculate duties on small parcels, applying either a zero rating or a 20 per cent rating instead of the correct 45 per cent duty and 15 per cent VAT.

“What we saw was there was a gap in the market that was being taken advantage of, but it became a market in the gap, a big market all by itself in the gap. So, a few thousand became many millions of parcels that had implications for revenue and for trade,” said Lawrence.

Lawrence anticipates that these new measures will level the playing field, making competition fairer for both local and offshore manufacturers who have been adhering to the full duty requirements. The substantial price differential had made competition difficult and unfair, particularly affecting local retail.

When asked how these new tax measures will affect South African consumers, he acknowledged that consumers who have benefitted from lower prices due to the gap in the market would face price increases. However, this change is expected to result in a more accountable market and better consumer protection. “As part of the bigger picture, what we should see is essentially a more accountable operation available to the South African consumer. Going forward, we remain concerned about offshore operators who don't have a local presence because our consumer protection legislation is very good here,” Lawrence added.

Regarding the competitive landscape for local retailers, Lawrence asserted that South African retail, particularly clothing retail, has always been highly competitive. He expects this competitiveness to continue, with efforts to offer the best deals to consumers, whether products are bought from shelves or online.

Fibre2Fashion News Desk (KD)