This article was first published in the 1st quarter 2017 edition of Personal Finance magazine.
Did you know that OR Tambo airport has a duty-free shopping website that allows travellers to shop online up to 30 days (but not less than 72 hours) before an international flight? You just pick up the goodies at the airport. The service is on trial at the moment, but Airports Company South Africa (ACSA) says it plans to roll it out in the other international airports.
But why would you shop duty-free if not to kill time in the departure terminal? Are the prices really that good?
“Prices charged in the duty-free mall should, in the main, be lower than (those) charged at premium stores in general shopping centres,” according to information supplied by ACSA’s media desk in response to questions. Apart from the goods being free of both import duty and VAT, “the value proposition duty-free offers is that certain products and sizes/volumes are different to those sold in premium stores at normal shopping malls. For example, alcohol at a duty-free store would be sold in one-litre bottles, compared to 750ml at a normal premium store.”
Actually, one-litre bottles of spirits are not unique to duty-free shops any longer. My suspicion is that airports might be shooting themselves in the foot by providing an online option. Where price comparison is not available, the myth of duty-free goods being a bargain can thrive. Where a popular fragrance – Elizabeth Arden Red Door EDT (100ml), for example – costs R544 on the OR Tambo website, when it could be bought for R479 (Takealot.com) or even R395 (Clicks) elsewhere, the myth starts to crumble.
Comparing OR Tambo’s duty-free prices with prices of the same products at other retailers is tricky, because there are all sorts of variations of price and packaging among popular duty-free products such as whisky, perfume and chocolate. But I did find a few identical products apart from the Elizabeth Arden fragrance, and they do provide a snapshot of how prices compared (at the time of writing in mid-November 2016). Note that the difference in price is the difference between the airport price and the lowest price I found elsewhere (including import duty and VAT) and is printed in red where the airport price is more expensive.
• Johnnie Walker Black Label 12-year-old whisky: one litre was R348.50 at the airport; R309 at Takealot.com and R309.99 at Picardi Rebel. Maximum difference: +R39.50
• Jameson Irish whisky: one litre was R293.25 at the airport; R367 at Takealot.com and R369.99 at Checkers Liquor Store. Maximum difference: –R73.75
• Belvedere Vodka: one litre was R509.15 at the airport; R470.49 at Takealot. Difference: +R38.66
• Givenchy Very Irresistible fragrance EDP: 75ml was R1 139 at the airport; R899 at Takealot.com. Difference: +R240
• Jean Paul Gaultier Classique EDP: 100ml was R1 474.75 at the airport; R1 420 at Clicks. Difference: +R54.75
• Ferrero Rocher chocolates: 375g was R212.50 at the airport; R159.99 at Pick n Pay and Checkers. Difference: +R52.51
• Ferrero Nutella spread: 350g was R102 at the airport; R52.99 at Checkers. Difference: +R49.01
• Quality Street: 750g plastic pouch was R335.15 at the airport; the same quantity in a plastic tub with a lid (equivalent of a tin) was R139.99 at Checkers. Difference: +R195.16
• Estée Lauder Advanced Night Repair Eye Gel: 15ml was R488.75 at the airport; R820 at Edgars. Difference: –R331.25
• Clarins Moisture Rich Body Lotion: 200ml was R314.50 at the airport; R460 at Edgars. Difference: –R45.50
• Clarins Men Super Moisture Balm: 50ml was R335.75 at the airport; R375 at Edgars. Difference: –R39.25
So your best hope of savings seems, from this tiny sample, to be in the cosmetics department. But the overall message is: don’t take great prices for granted.
And that applies everywhere if you research what’s been written about duty-free shopping in other countries. If, to you, paradise is World Duty Free at London Heathrow Terminal Five, for example, you might prefer not to know the conclusion of the British edition of Good Housekeeping magazine, when it compared airport prices with prices elsewhere: “Our verdict? Don’t blindly assume buying duty-free is always cheaper: it isn’t.”
The magazine struggled to find bargains among the popular brands of liquor at Heathrow and had to settle for just one brand of vodka and one brand of French champagne. Chocolates proved more expensive at the airport every time, even when they were offered in bulk-buy packages exclusive to duty-free. Cosmetics were a mixed bag – some were cheaper than standard, but the United Kingdom has a thriving online market, and you might be well-advised to buy that way if you have time and space in your luggage. The same goes for electronics: the odd thing may be cheaper at airports, but overall, Good Housekeeping found that prices matched the high-street retailers and online stores and advised consumers to compare prices beforehand.
Fragrance was one of the more promising categories of duty-free products, with a few bargains available, but the outright winner in the cut-prices stakes was tobacco products … not that we’d recommend them, of course.
Other opinions? Huffington Post wrote of duty-free shopping two years ago: “Everything is not a steal. Those smart shopkeepers take advantage of (my) spending momentum and often sell products that are, at best, priced as they would be anywhere else.”
MarketWatch.com, a reputable financial website in the United States, noted that the billions of dollars spent at duty-free shops “isn’t all money well spent by consumers” and advised travellers to avoid, in particular, electronics, clothing, cosmetics and cameras.
You have been warned. And there’s more: be aware, too, that all the goods you acquire outside South Africa, including those that are purchased duty-free, whether for your own use or as gifts, are subject to duty-free allowances.
According to the South African Revenue Service (SARS), a “traveller’s duty-free allowance is the amount of goods which he/she qualifies to bring back to South Africa without the payment of customs duty or value-added tax (VAT). Note that the allowance applies to goods for personal use or given as gifts; there is no duty-free allowance for goods imported for commercial purposes.”
In terms of the Customs and Excise Act, South African residents may bring into the country goods, excluding consumable goods, to the value of R5 000 once in any 30-day period, as long as they have been out of the country for more than 48 hours. So you will not receive even that small allowance if you leave the country a second or third time within 30 days, or you nip out of the country for less than 48 hours, unless you go to one of the countries in the Southern African Customs Union (Sacu: South Africa, Botswana, Lesotho, Namibia and Swaziland), which are treated differently (see below).
Apparently, the allowance has not been increased for many years; the “Customs external guide: duty-free allowances for travellers”, published by SARS (search for “duty free allowances” in the search facility on www.sars.gov.za), uses an exchange rate of about R7 to the US dollar and R11 to the British pound. At the time of writing in November, the rates were R14.48 to the dollar and R17.86 to the pound, giving you US$345 or GBP280 to spend. And duty-free allowances can’t be pooled, so two people cannot buy one pro- duct worth R10 000 and claim it as duty-free between them. Minor children have the same allowance as adults, but the goods must be for their own use, so they cannot bring in tobacco products or alcohol.
The “consumable goods” that are not included in the duty-free allowance of R5 000 are the following, permitted in these quantities: 200 cigarettes; 20 cigars; 250g of pipe and/or cigarette tobacco; two litres of wine; one litre of other alcoholic beverages (including beer); 250ml eau de toilette fragrance; and 50ml of perfume.
When you arrive in South Africa from a member country of Sacu, you do not pay customs duties on the goods you bring in and you are entitled to a VAT exemption on goods to a maximum value of R25 000 once in any 30-day period – again, after an absence of at least 48 hours.
You are also allowed to bring in, duty-free, “handmade articles of leather, wood, plastic, stone or glass if the goods do not exceed 25kg in total weight”. If your purchases exceed R25 000 in value or 25kg in weight, they are subject to customs duty and VAT.
Apart from the permitted value of goods acquired outside the country (again, including in duty-free shops), residents are entitled to travel with personal belongings, including clothing, toiletries and the “tools of trade” – in other words, the equipment you need to do your job. You may also travel with up to three months’ supply of your personal medication, as long as it is accompanied by a doctor’s prescription.
If you are travelling with valuable items (such as jewellery), you can bring them back into the country without any risk of a misunderstanding at customs if you register them on your way out, using form TC-01, which is held by customs, and form TRD 1, which you keep and present on your return. This is recommended, rather than required, but the SARS guide does say that such items are duty- and tax-free “on condition that, if need be, [they] can be identified as the same goods they left with”. If these returning items are worth more than R50 000, you need form NEP, which is an exchange control declaration available from any bank.
Visitors to South Africa can bring in the same personal belongings for their own use, with the intention of taking them with them when they leave. If they are carrying valuables, they may be required to pay a deposit at customs and claim it back when they depart with the goods.
Purchases you pay for
If you import goods for commercial use (to which no duty-free allowance applies) or the total value of purchased goods exceeds R5 000, you need to steer yourself through the red channel, declare the goods and pay the price.
Travellers who enter the country from outside Sacu with goods in excess of the duty-free allowance, but not exceeding a total value of R20 000 in any 30-day period, can take advantage of the so-called flat-rate allowance, which is 20 percent of the value of the goods. Where this rate applies, the goods are also free of VAT.
The flat-rate option does not have to be used up in one arrival; you can claim the rate for a total of R20 000-worth of goods brought in on various occasions during the 30-day period. For example, you could enter South Africa three times 10 days apart, from three different countries, and claim the flat rate of 20 percent on goods worth R6 500, R6 500 and R7 000. (Note that you cannot claim the R5 000 duty-free allowance each time; that applies only once in any 30-day period.) If it would cost you less, you can also refuse the flat rate of duty and ask customs to assess the goods at the appropriate rates of duty and VAT.
Follow this link for examples of how the duty-free allowance and flat-rate thresholds apply.
SHOWING YOUR BOARDING PASS
Why do you have to show your boarding pass when you buy duty-free?
Retailers operating in duty-free malls do so with a special licence from the customs division of the South African Revenue Service (SARS), which allows them to import goods free of import duty. All products sold in duty-free shops are also zero-rated for VAT, because they are deemed to be for export. Needless to say, in return for this privilege, SARS requires good record-keeping, including the flight and seat numbers associated with all VAT-free sales. Hence the presentation of your boarding pass every time you make a purchase, be it ever so small. Only food and beverages for consumption at the airport may be sold without passenger records.
Why prices at airports are so high remains unanswered. Rentals are probably a major factor in the price equation. Asked whether Airports Company South Africa (ACSA) monitors pricing, or requires any commitment from retailers to pass on to customers the savings they make from duty- and VAT-free sales, the company would say only: “The lease agreement ACSA has with the retailer contains a clause that monitors pricing.”
In the United Kingdom, newspapers and consumer websites have been campaigning for years to end the presentation of boarding passes at duty-free shops, which they claim is not a legal or security requirement and has only one purpose: to ensure that the duty-free shop does not have to pay VAT (at 20 percent in the UK) on sales. However, they argue (and there is ample evidence) that some chain stores charge exactly the same prices in the duty-free malls as they do elsewhere, which means that VAT amounting to millions of pounds a year is going into the retailers’ pockets.
In 2015, BBC Radio 4’s consumer affairs expert, Paul Lewis, told the Daily Mail newspaper that retailers are “not being straight with the public”, adding: “They are asking to see boarding cards, but not telling them that this is so they can make more money by not paying the
VAT on what they’re selling.” In the same article, Guy Anker of the respected website Money Saving Expert said: “There is an assumption that duty-free means cheaper. But that is not the case. All it means is that the stores themselves are not paying the duty.”
THE UK'S DUTY-FREE ALLOWANCES
As a South African travelling to the United Kingdom, you are allowed to take in the following (for your own personal use or as gifts) without paying import duties or VAT:
• Alcohol: 16 litres of beer and four litres of wine (not sparkling), plus either one litre of spirits and other liquors over 22 percent alcohol or two litres of fortified wine (for example, port, sherry), sparkling wine and alcoholic drinks up to 22 percent alcohol. You can split this last allowance – for example, you can take one litre of fortified wine and half a litre of spirits (both half of your allowance).
• Tobacco. You can take in one of the following: 200 cigarettes, 100 cigarillos, 50 cigars, or 250g tobacco. You can split this allowance, too – so you could take 100 cigarettes and 25 cigars (both half of your allowance).
Allowance for other goods
You can take other goods worth up to £390 (R6 968), or up to £270 (R4 824) if you arrive by private plane or boat. If a single item is worth more than your allowance, you pay any duty or tax on its full value, not just the value above the allowance.
You pay customs duty on anything you bring in above your allowance at a rate of 2.5 percent, up to a value of £630 (R11 257). If the value is higher, the rate depends what the goods are. You may also have to pay import VAT at the standard UK rate of 20 percent.