Huge e-commerce tax changes in South Africa

The South African Revenue Service (SARS) has provided details about major changes to eCommerce taxes on imports into the country.

On 8 August 2024, SARS announced that it had noted legitimate concerns in importing several goods, especially clothing, via eCommerce.

“A number of importers have not been paying the obligatory customs duties and VAT on these imports, resulting in unfair competition with other industry players,” the revenue service said.

Although SARS did not mention the eCommerce platforms, there have been complaints about Temu and Shein.

Many local competitors argued that part of the reason for Shein and Temu’s dominance is that they do not have to pay the same import duties as local players.

Tax director at Van Huyssteens Commercial Attorneys Jean-Louis Nel explained that packages under R500 are taxed at 20%.

Retailers claim Temu and Shein break up larger orders into smaller quantities and packages to ensure they are under R500.

Once they have benefitted from the lower 20% tax, they combine these orders again before shipping them to clients.

Nel explained that Temu and Shein used the ‘de minimis’ rule by splitting imports to fall below R500. “That means there is a flat rate of 20% and zero VAT,” he said.

“Retailers are aggrieved by this practice as any imports they do is at 45% plus 15% value-added tax,” Nel said.

SARS said it was committed to providing clarity and certainty in implementing its mandate of promoting legitimate trade for the country’s economic development.

“This will be achieved by making it simple and easy to facilitate an increased movement of goods,” it said.

This puts South African retailers under a great deal of pressure because consumers will prefer lower-priced items.

SARS Commissioner Edward Kieswetter also commented on the issue, saying they needed new tax rules to combat the “unfair advantage” online retailers have created.

Changes to eCommerce import taxes into South Africa

SARS explained that its customs unit implemented a “concession” for goods valued at less than R500, in which importers paid a flat rate of 20% in place of Customs duties and no VAT.

It said it would address concerns from local retailers and provide clarity for traders involved in the importation of goods via -Commerce.

“SARS will make several changes in line with the World Customs Organization (WCO) framework to deal with the already changing trade landscape,” it said.

It explained that in 1990, the shipment of large numbers of small or negligible-value goods across borders experienced significant growth globally.

It resulted in the WCO developing a set of release and clearance procedures known as the “WCO Guidelines on Immediate Release”.

These guidelines aimed to assist WCO member Customs administrations in standardising the processing of eCommerce goods.

It was based on the principle of information being provided by the operator to customs in advance of the arrival of the goods.

It developed a universal categorization of goods into four categories:

• Category 1 – Correspondence and documents – No commercial value, not subject to duties and taxes, immediate release on the basis of a consolidated declaration that may be oral or written (a manifest, a waybill or an inventory of such items).
• Category 2 – Low-value consignments below a specified de minimis threshold for which no duties and taxes are collected and immediate clearance and release against a manifest, a waybill, a house waybill, a cargo declaration, or an inventory of items.
• Category 3 – Low-value dutiable consignments (simplified goods declaration) – goods above de minimis but below full declaration value threshold, dutiable, and the use of a simplified declaration, or release against a manifest with subsequent simplified clearance, etc.
• Category 4 – High-value consignments (full goods declaration) – Consignments not falling under the three categories described above and include consignments containing goods that are subject to restrictions. Normal release and clearance procedures, including payment of duties and taxes, apply.

SARS is now changing the way it handles smaller packages which come into South Africa via eCommerce shipments.

As an immediate interim measure, it will introduce a value-added tax (VAT) in addition to the current 20% flat rate by 1 September 2024.

It will also reconfigure the current 20% flat rate into the WCO regime for the first three broadband categories with appropriate duty rates by 1 November 2024.

Kieswetter said SARS will partner with the Department of Trade, Industry and Competition (DTIC) and other industry players to build public trust.

They will seek opportunities to level the playing field to protect local industries and create business opportunities for economic growth.

He said that SARS will resort to “the greater use of data, artificial intelligence, machine learning and algorithms to better facilitate trade while minimising risks to the economy”.

This article was first published by Daily Investor and is reproduced with permission.