SARS Revamps eCommerce Tax to Protect South African Retailers

In a bold step to address the growing concerns of local retailers and stabilize the economic landscape, the South African Revenue Service (SARS) declared significant adjustments to the eCommerce tax structure on imports. This initiative, poised to roll out in phases starting 1 September 2024, will introduce value-added tax (VAT) on top of the prevailing flat rate, tightening the noose on market giants such as Shein and Temu who have leveraged loopholes to their advantage.

SARS Commissioner Edward Kieswetter expressed commitment to recalibrate the tax regime to dismantle the 'unfair advantage' online retailers possess. This unfolds against a backdrop where Shein and Temu, among others, reportedly exploited the 'de minimis' threshold by fragmenting shipments into packages worth less than R500, thus benefiting from a reduced 20% tax rate without accruing VAT, as explained by tax director Jean-Louis Nel from Van Huyssteens Commercial Attorneys. In contrast, South African retailers have been shouldering a hefty 45% import duty plus 15% VAT.

These moves by large eCommerce players have sparked intense criticism, pointing towards a disparity that undermines domestic businesses, presenting a classic case of unequal playing fields where local players can't compete with the reduced prices offered by overseas platforms.

SARS's strategy involves a meticulous revamp that aligns with the World Customs Organization (WCO) framework, recognizing the escalated rise in the shipment of small or negligible-value goods since 1990. The idea is to introduce measures that balance thoroughness with facilitation in the importation process of eCommerce goods.

The immediate step includes levying VAT on goods beneath the R500 mark beginning September 2024, with a subsequent overhaul of the current flat rate system to fit within the WCO's categorization and applicable duty rates by November 2024.

SARS aims to fortify public trust and encourage economic expansion by joining forces with the Department of Trade, Industry and Competition (DTIC) and other stakeholders. Embracing advanced data analysis, artificial intelligence, machine learning, and algorithmic aids, SARS is set to pioneer a more accurate and risk-averse trade facilitation approach.

By striking a balance between ease of trade and stringent regulation, these efforts echo a broader purpose of nurturing a fair competitive environment and fostering sustainable growth within South Africa's burgeoning eCommerce sphere.