BUSINESS LAW &TAX
SEPTEMBER 2024 WWW.BUSINESSLIVE.CO.ZA
A REVIEW OF DEVELOPMENTS IN CORPORATE AND TAX LAW
Managing ugly face of fashion production of clothes •hasExcess to be reined in by legislation Carlyn Frittelli Davies, Mansoor Parker & Busisiwe Vilakazi ENS he fashion industry’s battle between profit, people and planet has reached the international stage. Legislative regulation has entered the arena and is taking different forms across nations. The impacts are obvious: mounting textile waste in the Global South, ongoing garment worker exploitation and unfair competition for local industries which threatens economic stability. Locally, consumers have dissatisfaction expressed with the SA Revenue Service’s (Sars) announcement, in reaction to the request by the retail-clothing textiles, footwear and leather sector that clothing (RCTFL), imported through e-commerce platforms such as Shein and Temu will attract VAT from September 1 2024, and full customs duties of 45% from November 1 2024. This type of government reaction is not limited to SA, as countries clutch at tax systems to protect local
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from alleged industries affordable fast fashion. Customs duties are imposed on certain imported goods to protect specific local industries and to generate funds for the government. Following a global increase in trade in smallvalue goods primarily transported through courier and express mail services, in early 1990 the World Customs Organisation published guidelines for the immediate release of consignments by customs (immediate release guidelines) to expedite the clearance of such goods. The immediate release guidelines provided a basis for Sars’ implementation of a concession imposing a flat rate of 20% in custom duties on items valued below R500 and exempting such items from the payment of VAT. Since the 1990s e-commerce platforms have expanded
CUSTOMS DUTIES ARE IMPOSED ON CERTAIN IMPORTED GOODS TO PROTECT SPECIFIC LOCAL INDUSTRIES AND TO GENERATE FUNDS
MATERIAL GAINS
aims to hold producers, and often importers, brand owners and in some instances retailers responsible for the entire life cycle of a product. The ultimate goal is a “cradle-to-cradle” instead of a “cradle-to-grave” fate for products included in the EPR scheme. The shift from a linear production to a circular one is supported through levies to ensure proper disposal and, preferably, recycling and upcycling of products as well as incorporating technology and design into production to avoid waste. The EPR levy is a type of tax, paid to the entity managing the recycling and disposal of the regulated product.
FRENCH SCHEME
/123RF — SEREZNIY exponentially, leading to increased imports of “small” value goods, including fast fashion items. Sars’ concession does not apply to manufacturers and retailers in the local RCTFL industry, which pay full customs duties and VAT on the importation of high-volume and high-value consignments. The Sars concession applied to “small” value goods has perpetuated the notion that fast fashion is “afford-
able”, and has resulted in an unfair advantage for e-commerce platforms to the detriment of our local RCTFL industry. The Sars commissioner has estimated that these loopholes and the increase in global e-commerce trade has resulted in tax losses of R3.5bn. The latest trend catching the attention of the EU is the extended producer responsibility (EPR) scheme for textiles. An EPR mechanism
Although Italy, the Netherlands and Sweden have recently implemented or started implementation of EPR schemes for textiles, France, a trail-blazer in the fashion world, started its EPR scheme for textile products, and household linen footwear in January 2007. The French EPR scheme for textiles charges between €0.01 and €0.06 per clothing item and, sadly, these measures have not been enough to curb overconsumption for various reasons, including the lack of infrastructure required to recycle and upcycle the collected clothing.
Perhaps the failings of the French EPR system will contain lessons for future schemes or the design of new legislation. In this regard, and to protect the French clothing industry, new laws have been proposed including an approved bill with a mechanism to evaluate fashion
LOOPHOLES AND THE INCREASE IN GLOBAL E-COMMERCE TRADE HAS RESULTED IN TAX LOSSES OF R3.5BN companies with an eco-point system and levy €5 and up to €10 per clothing item by 2030 if a low score is achieved. The score will be displayed on clothing items to deter fast fashion consumption entirely or, at least, to limit it. Of course, criticism has been noted, especially with recent reports of unfair working conditions for those producing for the luxury clothing sector. Profit takes centre stage no matter the label, but the message from governments collectively is clear: overproduction, overconsumption and the ugly impact of fashion have to be managed through legislation.