The South African Revenue Service (SARS) has noted that some online offshore companies have found ways to dodge import duties and value added tax (VAT). Without naming these international companies, it is said that they have been by ignoring import duties and VAT when exporting small parcels to South Africa deemed to be less than R500 in value and only being charged an import duty of 20% and zero VAT.

What is Import Duty?

Customs officials collect import duty, often known as customs duty, on all items traded across international boundaries. Raising revenue for local governments is the goal of import taxes, but they also boost the final cost of the items for consumers, incentivizing them to purchase from the domestic market, which is exempt from this tax.

Now as of 01 July 2024, SARS says that all imported clothing that comes into South Africa should have an import duty of 45% plus 15% value added tax (VAT).

How is VAT calculated on imported goods?

According to SARS, this is how VAT is calculated; the VAT rate in South Africa is currently 15%. To calculate VAT on imported goods, the ATV (added tax value) needs to be determined first. This is done as follows:

• [(Customs Value + 10% thereof) + (any non-rebated duties levied on the goods)] x 15% = [ATV] x 15% = VAT payable 

The 10% mark-up on the customs value in this calculation is applicable when goods are imported from a country outside the Customs Union. Therefore, if goods have their origin in any of the BLNS countries (Botswana, Lesotho, Namibia or Swaziland), the 10% will not be added to the calculation. When goods are exported to any of the BLNS countries, the same applies (no mark-up on the customs value to determine ATV).

How did international retailers get away with this?

For a very long time, particularly when e-commerce was still in its infancy, SARS focused their attention on the big guys, bringing in expensive goods in the country. Small parcels were not taken seriously as there was no lucrative market.

Michael Lawrence, Executive Director of The National Clothing Retail Federation says, ‘’they took advantage of a very peculiar system within SARS where small parcels would come in at under 20% duty and VAT collectively and that certainly caused us a big problem.’’

It was only when the market started becoming lucrative that SARS suddenly woke up and realised how much has been lost right under their nose.

How does this affect local retailers?

Local retailers do not have the advantage that the international players had because they operate within South Africa therefore, laws are easy to impose on them. However, Lawrence says, ‘’that’s not a level playing field. We’ll respond to some of the other more commercial implications differently; market disruption implications differently but we need our regulatory environment to be fair, free and transparent and level.’’

The ball is now in your court as the consumer on where to take your money. What this enforcement does, is to level the playing field for both local retailers and international ones.