Consumers play Santa to the taxman each year

As South Africans have been spending their annual bonuses on festive fun and presents for friends and family, the public has also been giving an extra gift — to Pravin Gordhan's South African Revenue Service (SARS).

Last year, with the assistance of Deloitte's Indirect Tax unit, Business Day surveyed a range of goods popular as seasonal gifts to establish how much of typical spending over the festive period goes to customs and excise and value-added tax (VAT).

The exercise showed that on all the goods supplied to the tax team, an average of 21% of the retail price was related to duties and VAT.

This year Business Day decided to embark on a different exercise. We surveyed a range of Christmas decorations and those infamous Christmas crackers. After all, what would Christmas be without decorations?

Anyone for a singing donkey?

Our first stop was at Woolworths in Rosebank, Johannesburg. Most of the items in its range of Christmas decorations are imported from China.

These included a Singing Donkey for R120, a Christmas Bear for R79,95 and a Christmas hat for R49,95.

A Christmas stocking to place your Christmas goodies in goes for R99,99.

Our next stop was Clicks, where Christmas bells were going for R14,99 and Christmas crackers for R99,99.

Cardies in the Rosebank Mall has deluxe Christmas crackers going for R199,95, a Christmas Reindeer for R298,85 and fake snow spray for R24,95.

We really liked the Santa to put under your Christmas tree, going for R869,95.

At Game in Cresta you can get a 180cm green opticfibre tree for R599 or a 120cm one in green or white for R399.

Most of these items, too, were imported from China.

A specific tariff heading covers “articles imported for Christmas festivities”, says Jed Michaletos, an associate at Deloitte Indirect Tax. “These items carry a 30% customs duty on importation into SA,” he says.

Once the import VAT duty is added, this accounts for a whopping 50% of the import value paid over as duty and VAT. This was R24,2m for last year, up 47% from R16,5m in 2005.

Increase expected

However, Michaletos says, “Most of these imports are usually done in the three months before December.”

He says imports have increased over the years, with a resulting increase in the duty and VAT collection on these items.

“We expect an increase to R32,9m this year,” he says, adding, “Talk about a nice Christmas bonus for SARS in terms of their collections.”

Michaletos says duties have two roles — as a revenue collection tool, and to protect local industry and manufacturers.

Companies importing goods need to ask themselves two questions, says Michaletos — whether there are local manufacturers of the types of products in SA, especially the opticfibre trees; and, even if there are only a few local manufacturers, whether the protection of 30% is excessive.

Ansa du Preez, assistant manager at Deloitte Indirect Tax, says that the International Trade Administration Commission (ITAC), which is part of the trade and industry department, makes recommendations to the trade and industry minister about the duties that are in place on imported goods.

Treated unfairly

Companies that believe they are being treated unfairly need to follow a formal trade lobbying process that starts with making an application to ITAC.

ITAC has a number of remedies at its disposal, which include removing the duty totally; reducing the duty; inserting a new or more specific tariff heading to cover a company's product by removing duties; or imposing a lower duty. Another option is a rebate of duty.

Two examples of such rebate items are goods imported for use in the construction of the Gautrain and those earmarked for consumption or use in the 2010 Fifa World Cup in SA.

These rebates allow importers to bring the goods into SA without having to pay the related tax. It is important that importers wanting to make use of rebates familiarise themselves with the specific conditions of these rebate items to avoid unnecessary problems and penalties for noncompliance, Du Preez says.

With the Gautrain provision and the World Cup rebate, for example, a specific permit from ITAC had to be obtained.

“Many companies use trade lobbying to reduce their input costs,” says Du Preez.

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