SARS Tightens E-Commerce Import Duties to Level the South African Retail Playing Field

The South African Revenue Service (SARS) has announced a significant tightening of import duty regulations that will impact the operations of popular online retail platforms like Temu and Shein in South Africa. SARS Commissioner Edward Kieswetter has called out the exploitation of import concessions, which have led to a purported fiscal shortfall of R3.5 billion, pledging to clamp down on the perceived unfair advantages these e-commerce giants hold.

This regulatory shift targets the elimination of the aforementioned gaps in existing tax rules and administration processes. These issues came to light following complaints from local retailers and labor groups, who argued that international online retailers secured an edge over domestic companies by making use of outdated tax concessions.

Centrally, the dispute revolved around the exploitation of a de minimis rule, which previously allowed imports under R500 in value to attract a lower import tax rate, disadvantaging local businesses subjected to higher duties and VAT. However, as clarified by maritime law expert Mark Goodger, the real advantage arose from an arrangement through Buffalo International Logistics, which, under a 2007 SARS concession, paid a flat 20% import duty.

This concession aimed to streamline trade and reduce customs burden, but inadvertently disadvantaged local retailers, who faced a much steeper 45% duty plus 15% VAT on similar imports. The intent behind closing this loophole is not to burden consumers but to ensure that all parties in the sector operate under the same financial constraints, thus encouraging fair competition.

In reaction to the proposed changes, a public outcry ensued, characterized by a petition against the increased import taxes, which, despite significant support, failed to sway the tax authority's decision. The introduction of a 45% import duty, coupled with VAT from July 1, 2024, has been set to rectify the situation.

Local players like The Foschini Group have welcomed the change, foreseeing a positive impact on domestic retail and manufacturing industries, as well as job creation. Meanwhile, the consumer response has been mixed, with many opposing the tax hike that they fear will raise the cost of imported goods dramatically.

E-commerce platforms Temu and Shein, in collaboration with Buffalo International Logistics, had experienced extraordinary growth due to the popularity of their services in South Africa. The immense success has evidently strained their operations, with Buffalo having to delay customer orders due to the upsurge in demand.

The rapid expansion of Buffalo International Logistics is notable, with the company's employment numbers ballooning in the span of a few years. This growth coincides with the significant uptake of Shein's service, especially after receiving a Level 1 Authorised Economic Operator (AEO) accreditation from SARS, further highlighting the symbiotic relationship between the e-commerce platforms and their logistics partners.

As the market adjusts to these changes, the question remains: will this restructuring of duties play a role in shaping a more equitable and sustainable retail sector in South Africa?