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Challenge results in dropping of aircon import duties

Home Business Management Finance & Investment Challenge results in dropping of aircon import duties

IN a first for the South African market, Investec successfully petitioned the Department of Trade, Industry and Competition (DTIC) to obtain a rebate provision to import airconditioning units with a rated cooling capacity under 8.8 kilowatts (kW).

“In a review of one of our client’s operations, to identify business growth opportunities, we noticed that the annual disbursement on import duties for airconditioners was exceptionally high. After further research it was established that there are no local manufacturers for domestic airconditioners,” explains, head of supply chain at Investec for Business, Dylan Govender.

To secure a cost-effective supply of airconditioners from international suppliers, Investec applied to the International Trade Administration of South Africa (ITAC) to reduce import tariffs on units with a rated cooling capacity under 8.8 kW, which are typically used in homes or offices.

“While the DTIC reviews tariffs annually, they remain unchanged unless someone contests them. But applying to reduce duties is costly, and importers typically pass on duty costs to customers, which is why they generally avoid the process, and the industry continues with the status quo,” elaborates Govender.

However, a market analysis revealed the potential for substantial savings from reduced duties, which cost the industry approximately R120 million rand per year for domestic airconditioner imports. While customs duties typically serve as a protective mechanism for existing industries, ITAC will consider reducing or removing duties in cases where intermediate goods, consumption goods, or capital goods are currently not produced locally. And recent increases in the prices of imported parts, electricity and raw materials, such as scrap metal and ferrochrome, have placed severe pressure on input costs, capacity utilisation, and profit margins, which makes local manufacturing capacity unfeasible presently.

As such, following a data investigation and public comment period, ITAC, the DTI and National Treasury reviewed the application and considered any objections or claims from local manufacturers.

While the initial application lodged with ITAC to review the tariffs requested a complete removal of the 15% duty on airconditioners, a three-year rebate provision was instead approved, which would allow local manufacturers to start production if they deemed it viable.

“Now that the department has approved the rebate provision, all industry stakeholders, not just our client, will benefit from a significant reduction in duties paid on qualifying air conditioners,” continues Govender.

There is also no limit on the number of airconditioners that importers can bring into the country under the rebate provision, and there are no additional requirements or standards for the rebate provision other than having the necessary certifications at the time of importation, including applicable energy efficiency certificates.

“Our collaborative initiative to proactively challenge the existing tariff regime will lower costs and make air conditioners more affordable to middle-income households at a time when inflation continues to push the price of consumer goods higher,” explains Govender.

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