Recent discussions have highlighted confusion about the tax treatment of clothing goods in South Africa, especially concerning companies like Shein and Temu. It’s important to clarify that there has been no new tax increase on clothing goods. The existing tax rate for imported clothing into South Africa is 45% import duty plus 15% VAT.
Background and Current Practices
The confusion arises from the application of an exemption for goods under R500, which are taxed at a reduced rate of 20% import duty and Zero VAT. This exemption was originally intended to benefit individual consumers purchasing low-value items. However, companies like Shein and Temu have leveraged this exemption by shipping multiple items individually valued under R500 in larger packages, thereby benefiting from the lower tax rate.
SARS and Compliance
The South African Revenue Service (SARS) has become aware of this practice, which they believe undermines local clothing producers by giving an unfair advantage to offshore online merchants. SARS has noted that some companies have been using incorrect codes for small packages, resulting in a reduced duty rate. To address this, SARS has instructed courier companies to use the correct codes which is likely to mean the items attract 45% import duty and 15% VAT.
