The South African Revenue Service (SARS) increases customs duties for online retail orders as part of a broader strategy to promote local businesses and address global supply chain imbalances. The clothing and textile industry has faced widescale criticism for controversial Environmental, Social and Governance (ESG) practices. South African consumers may imagine themselves to be far from the hub of these issues. However, we are all participants in the global supply and demand for fashion.
Recent changes to the imposition of customs duties on online retail orders shine a light on some of these issues. We have unpacked the impact of these adjustments on consumers. We also consider some key factors for the South African fashion industry.
Despite being a relatively new player in the global fashion scene, South Africa’s textile industry plays a significant role in the country’s economy. It contributes to job creation, economic development, and export earnings. The textile industry, which includes the production of fabrics, apparel, and home textiles, has a rich history. It has undergone significant transformations over time.
Today, South Africa’s textile industry is diverse and multifaceted. It encompasses various segments such as spinning, weaving, knitting, dyeing, finishing, and garment manufacturing. The industry primarily serves the domestic market but also exports to regional and international markets.
Imported goods are subject to customs duties
Although there is potential for growth in the South African clothing industry, consumers still purchase significantly more imported products than locally produced clothing. According to the SARS trade statistics for June 2024, China remains the primary source of textile imports for South Africans. The average monthly import value from China is approximately ZAR 4.2 million.
Imported goods are subject to customs duties and a 15% VAT rate based on their value. This must be paid to SARS. The rate of customs duties differs depending on the type of goods imported and the country of origin.
Goods which can be sourced locally through the local manufacturing industry are typically taxed at higher customs rates. This ensures that South African manufacturers and suppliers are not disadvantaged. This is why an item from a foreign e-commerce website may appear affordable. However, once shipping costs (which often include customs duties) are calculated, the final price at checkout often leads to abandoned shopping carts.
Many online retailers such as Shein and Temu have used the de minimis rule. This rule means that imports of ZAR 500 or less have been subject to a standard customs duty of 20% on the value of the goods without VAT. This was in contrast to local retailers who pay up to 45% customs duty on imports and 15% import VAT.
The new customs duties and import VAT increases
In a significant move to bolster local businesses and streamline the customs process, SARS has increased customs duties on imports from popular online retailers such as Shein, Temu, and similar platforms. This decision is expected to impact many South African consumers who frequently shop on these international online stores.
The new regulations, which came into effect on 1 September 2024, modify how customs duties and import VAT are calculated. The changes are grounded in the Customs and Excise Act, No. 91 of 1964, the Value-Added Tax Act, No. 89 of 1991, and the World Customs Organisation (WCO) framework. The WCO developed the “WCO Guidelines on Immediate Release” in the early 1990s. These guidelines classify goods into four distinct categories, each accounting for different tariff thresholds.
Effective from 1 September 2024, VAT is added to the current 20% flat rate customs duty as a temporary measure. By 1 November 2024, the 20% flat rate will be restructured to align with the WCO categories.
What is being adjusted?
Customs duties are calculated based on the declared value of the goods. This includes any applicable shipping costs and insurance.
SARS has adjusted the duty rates to make importing small, low-value items less economically attractive. This adjustment aims to discourage frequent, low-value imports that contribute to inefficiencies and unfairness in the local market.
Import VAT is levied on the total value of the goods, customs duties, and a 10% upliftment on the customs duty value. This 10% upliftment represents an amount in lieu of shipping and insurance costs. According to the VAT Act, the standard rate of VAT is 15%. However, the recent changes may effectively increase this rate for certain categories of imported goods due to higher customs duty rates.
Reason behind the customs duties increase
SARS has justified the increased duty rates as part of a broader strategy to promote local businesses.
The goal is to make international imports more costly, particularly small, frequent orders that disrupt local markets and supply chains. This encourages consumers to shop from South African retailers, boosting the domestic economy and creating more opportunities for local businesses. It also reduces market clutter.
Small, frequent international orders contribute to logistical and administrative burdens. By increasing the costs associated with these imports, SARS hopes to ease the strain on the local customs system and streamline the processing of imports.
Broader impacts on the South African import/export market
SARS is not the only organisation seeking to rejuvenate the local clothing industry at present.
Regulatory oversight in the CTFL sectors
In South Africa, various government bodies and agencies oversee and regulate importing and exporting within the Clothing, Textile, Footwear, and Leather (CTFL) sectors. These bodies ensure that trade practices align with national standards, international trade agreements, and compliance with regulations. These regulatory bodies include SARS, the International Trade Administration Committee, the Department of Trade, Industry and Competition, the Clothing and Textiles Competitiveness Programme, the South African Bureau of Standards, and the National Regulator for Compulsory Specifications.
Revitalising the industry – the 2030 master plan
The industry’s regulatory monitoring has been guided by policies, such as the 2030 Master Plan for South African Retail, Clothing, Textiles, Leather, and Footwear Value Chain (RCTFL Master Plan). This is a strategic blueprint aimed at revitalising and growing the sector by 2030. The key goals are to boost local production, create jobs, revitalise sectors, and substitute imports.
Balancing local production and imports
The South African textile and clothing market is currently characterised by a mix of locally produced goods and imports. The market includes established local brands and retailers, with a growing interest in affordable, fast-fashion imports.
There is also a demand for luxury, local products for niche markets. The retail sector, which includes both huge chains and independent stores, is a key driver of demand. Consumer preferences have shifted towards more affordable and fashionable products, resulting in increased competition from imports, particularly from China. This shift can be attributed to economic factors, globalisation, and a lack of innovation in South Africa.
Export opportunities and challenges
South Africa exports textiles and clothing to various markets, including the United States, Europe, and other African countries. The African Growth and Opportunity Act (AGOA) has been a significant factor in boosting exports to the U.S. It allows duty-free access to certain products.
South Africa exports to countries like Australia, Botswana, China, Democratic Republic of Congo, Eswatini, Germany, France, Ghana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Tanzania, Uganda, Zambia, and Zimbabwe. However, the industry faces challenges in maintaining competitiveness due to rising production costs and competition from low-cost producers.
Employment trends in the textile industry
The textile industry remains a significant employer in South Africa, particularly in KwaZulu-Natal and the Western Cape. The sector provides jobs for thousands of workers. However, employment has declined over time due to automation, globalisation, and competition from cheaper imports. As consumer preferences evolved towards more affordable and fashionable products, South Africa faced increased competition from imports.
While South Africa still produces and exports various products to local and international countries, items that South Africa mostly imports are finished products, such as footwear and clothing. Its top imports come from China, Eswatini (particularly non-knit men’s and women’s suits and knit women’s suits), Lesotho (wool and bedspreads), and Mauritius (non-knit men’s suits, knit T-shirts, and light rubberised knitted fabric).
With SARS’ stated goal of bolstering local businesses, the restructuring of import duties may pave the way for the South African clothing industry to boost employment and competitiveness in local production and consumption.
The future of the South African clothing industry
The South African clothing and textile industry is an important sector to watch due to local policies and regulations, as well as regional opportunities such as the African Continental Free Trade Agreement (AfCFTA). The AfCFTA, in particular, is a game-changer. It presents a real opportunity to create a “Made in Africa” sustainable textile industry, relying on the various strengths and resources of AfCFTA members.
The successes of Africa’s automotive regional value chains teach us how to create “hub-and-spoke” supply chains. Some countries act as main hubs, while others serve as supportive hubs depending on relative specialisation. Special Economic Zones also play an important role in the growth of manufacturing and industrialisation.
There is also a real opportunity for international players to set up textile manufacturing hubs in Africa. These players can continue to rely on Asia or other regions for innovation. International players can benefit from regional trade agreements such as the AGOA or the SADC-EU Economic Partnership Agreement (EPA). These agreements allow them to export finished products to their markets while benefiting from preferential duties.
In conclusion
The global clothing and textile industry’s complex supply chains make it more difficult to find ‘locally made’ clothing than we may believe. Import duties alone may not rejuvenate the South African clothing industry, but the accountability and traceability of locally produced clothes offer clear benefits. Human rights breaches are common in labour-intensive industries, including child labour, unfair labour practices, sexual harassment, and abuse. South Africa is not immune to these issues, but monitoring and evaluation can be worked into a local production model.
Protecting local production also highlights the industry’s ability to foster opportunities for skills development and entrepreneurship, particularly among young adults. The AfCFTA emphasises the importance of creating these opportunities for women and youth, a cornerstone of development that is critically important in Southern Africa.
As doors open for growth in the fashion industry, a focus on local production and consumption represents a crucial opportunity. It could help foster an industry that is sustainable, incorporates fair labour practices, and takes advantage of regional trade opportunities.
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