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WORRYING CONDITIONS ATTACHED TO THE SOUTH AFRICAN REBATE OF DUTIES ON FABRICS USED IN THE MANUFACTURE OF UPHOLSTERED FURNITURE

By Donald MacKay | May 27, 2021

I don’t like it. ITAC have published the guidelines, rules and conditions pertaining to fabrics imported under rebate of duty, for use in the manufacture of upholstered furniture and they worry me.

This rebate exists because the textiles covered by the rebate are not produced in SACU (SA, Botswana, Eswatini, Lesotho and Namibia) or not produced in sufficient quantities. Any duty therefore levied on these textiles serve no protective purpose. If they don’t serve to protect, then they are simply inflationary and will cause our furniture sector to be less competitive. Bear this in mind as you read further.

There is a lot that can go wrong here and a lot will. Minister Patel has become worryingly comfortable using permits as a method to force behaviour, which seems to be working well in the short term, but which I doubt is sustainable into the long term.

The long list of compliance requirements have to be monitored. Companies who use the rebate are doing so in anticipation of future performance. They promise to create jobs and perhaps some even do, but some will not. Jobs are not created by rebate or dictate. They are created by being competitive.

Rebates help manufacturers to become competitive by giving them duty relief on a tax they should not be paying because the raw materials they need are not available locally. It makes them competitive and they grow. They employ more people. The approach used here turns this on its head. The moment you receive the duty relief, you need to spend it on additional staff at Bargaining Council wages. No one is going to be wild about this idea and for some companies the value of the rebate will not be worth the costs imposed to obtain the rebate. They will not apply or they they will apply and be penalised because they are found to not have kept the promises they made at the time the permits were issued.

This rebate strikes yet another blow at the rest of SACU. I don’t have any sense of the size (if any) of their furniture sector, but this new rebate has just made absolutely sure they will never have one.

In order to access the rebate, which would allow you to not pay the duty, you need to first get a permit from ITAC and to get the permit from ITAC you need to do a lot. Here is the list:

  1. Read and understand the Guidelines. I shit you not. That is the first requirement. It’s important because the 5th requirement says you have to submit everything in the application form or your application will be “deemed to be deficient and will not be considered”. Also the document ends with threats of criminal charges if you don’t comply, so focusing is important.
  2. ITAC have 14 working days (3 weeks) to issue the permit (or reject it), from when they receive a complete application.
  3. The permit will be valid for 12 months at a time, so you only need to apply once a year.

In a mild panic? Contact us on info@xa.co.za

Now we begin running into the problems or what are politely called “reciprocities”. These are the 10 commandments of the latest textile permit.

  1. The applicant must produce a formal letter on a letterhead confirming “the applicant complies with labour laws, regulations and agreements gazetted by the Minister of Labour”. This would be the South African labour laws and the South African Minister of Labour presumably. It is not clear what to do if you manufacture furniture in any of the other SACU countries.
  2. The applicant must also submit proof of registration and a Certificate of Compliance from the relevant Bargaining Council. Yet another hurdle a producer elsewhere in SACU will not be able to cross.
  3. The applicant must submit a letter of consent to share information with industry (The Textile Federation – Texfed) and government (DTIC). I looked at the Texfed website and they have 1 producer of upholstery textiles, so when we talk of local suppliers of the fabric, this seems to reference a single company.
  4. Before applying for the rebate, the applicant must first consult with Texfed and any known local manufacturers of the required upholstery fabric. They also need to supply a sample of fabrics to be imported to all of the possible suppliers. The relevant producers need to then indicate the extent of local availability of the fabrics to be imported under rebate of duty. If you have no idea who can supply you locally, you then have to consult with the Sustainable Cotton Cluster (SCC) and the DTIC Clothing and Textile sector desk to obtain a list of local manufacturers “so as to allow the applicant(s) to widen their engagements”. You have to prove you did this by attaching letters of engagement from the local industry, not older than 30 days at the time of application. If your application for a permit is declined, the DTIC sector desk will provide proposals to you (no idea what these will be).
  5. Now things take a really dark turn. If you want the rebate you need to supply ITAC with a certified copy of an irrevocable purchase order and firm commitments in the form of signed Off-take Agreements of locally purchased fabrics. The agreement between the furniture and fabric manufacturers should ensure that a minimum volume or value of local (South African I assume) fabric is used when making the furniture. So if you want to import some fabric you also have to buy some locally (probably from the 1 guy making upholstery fabric locally).
  6. The point of the rebate, we are told, is to provide relief to local manufacturers of furniture facing import pressure and so the rebate provision “will be tied to conditions related to economic performance over time and may be reviewed after a specified period. Reciprocity commitments as set out in the application form must be addressed in each application submitted”. Well that’s not ominous at all. The rebate is created because the local industry can’t supply. Whether or not there is “injurious import pressures” or not, doesn’t make the fabric available locally.
  7. But wait. That’s not all! The furniture manufacturer must commit to the “creation of employment and provide in each permit the number of jobs it expects to create annually as a result of the rebate permit granted. The applicant must submit to ITAC an annual report on its job creation performance.” If you want the rebate, even if you can’t get the product locally, you also need to create jobs.
  8. Rebate permits may not be transferred to anyone who is not the applicant.
  9. You need to have the permit in hand before the goods are shipped.
  10. And you can face criminal charges if you don’t comply.

Simple.

Photo: istock

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