Nana Ama Sarfo, a contributing writer for Tax Notes, talks about how lawmakers all over the world are using taxes to quickly solve issues.
The size and quality of this transcript have been edited.
Pleasant to the radio, David D. Stewart. I’m Tax Notes Today International‘s editor in chief, David Stewart. Taxes are always in fashion this year.
As the holiday shopping season draws near, there is a mad dash to find discounts on presents for friends and family. Holiday parties and other year-end activities will take place at the same time, prompting visitors to look for garments that will let them look great without breaking the bank. Quick style is here.
Nowadays, we’re looking at quick fashion’s tax ramifications and why policymakers are becoming more interested in the sector.
Contributing director for Tax Notes Nana Ama Sarfo is here to discuss more about this. Welcome up to the radio, Ama.
Nana Ama Sarfo: Dave, I appreciate it. It’s wonderful to get back. At the very least, this is something enjoyable to discuss before the holiday shopping season and the Black Friday financial fury, as you mentioned.
Excellent, David D. Stewart. Why do n’t we begin by giving a basic definition of what we mean when we talk about fast fashion?
Nana Ama Sarfo: The multibillion dollar fast fashion business essentially enables Gen Z and teenagers to purchase brand-new wardrobes each season, discard them after a few wears, and finally start over the following year.
It’s kind of democratized the concept of pleasure because as soon as a great fashion house debuts its collection, fashion brands start sewing knockoffs right away. It enables people to take part in luxury changes on a budget. Despite the fact that the replicas are typically not very good, nobody is really fooled in those situations.
Strong fashion, however, is a section of the wholesale business that mass produces enormous quantities of clothing at an extremely rapid speed and then sells them for incredibly low prices. If you’re looking for an academic response, read on. It offers everything from extremely low-cost stores like Shein and Fashion Nova and Temu to slightly more expensive versions like Zara and H&M.
They are making a killing and are present everyday, both online and in person. They have a firm hold on the clothing sector. Fast-fashion organizations like the H&M class or Inditex, which is the parent firm of Zara, are some of the best clothing stores in the world. The global fast-fashion industry is currently thought to be worth around$ 100 billion. There are a lot of people buying, and this has been the case for years.
David D. Stewart: What kinds of worries are raised by the quick fashion industry and the rapid turnover of clothes?
Nana Ama Sarfo: Also, there are a lot of worries. Concerns about the climate impact of these companies ‘ production methods are only present at a high level. Problems exist regarding the sheer amount of clothing being produced as well as the lifespan of these products.
These life cycle issues specifically relate to what happens to unsold stock or clothing that customers buy but afterward throw away. Then there are worries about, this call it tax evasion.
David D. Stewart: Alright, let’s get started. What kind of price evasion are we witnessing?
Nana Ama Sarfo: In terms of tariffs, you may think that customs authorities would be extremely pleased with the large amount of shipments coming into their nations from fast-fashion companies. However, the truth is that some of them think that these businesses are n’t paying the right amount of taxes when you consider the total volume of goods they’re sending.
This is due to the fact that some of these sellers ship their goods directly to customers. They do n’t do it in large quantities so that when the bulk shipment reaches the target nation, it can be divided up and distributed. The amount of tariffs that can be collected is impacted by the fact that they are selling extremely low-cost goods.
The Wall Street Journal reported that the Department of Trade, Industry, and Competitors in South Africa had announced in March that it was looking into Shein. The company is reportedly paying half or even a quarter of the correct tariff rate by shipping its clothing in smaller packages, according to South African officials, though I do n’t think we have any specifics about that investigation or findings just yet.
Additionally, there is some investigation in the United States. A statement from the U.S. House committee accused Shein and Temu of abusing a tax deduction in June. Importers in the United States are exempt from paying customs duties on packages worth less than$ 800. Under this provision, hundreds of millions of plans enter the nation.
About 30 % of those items, according to the House committee, are from Shein and Temu. They also stated that the items are being sent directly to consumers rather than in bulk. They can enter the country duty-free and are typically worth much less than$ 800 as a result. That is the price problem.
Then there are economic worries. Suppliers used to produce four style cycles annually, but fast-fashion companies are reportedly producing 50 or more cycles per year now. That equates to an annual production of about 100 billion pieces of clothing.
However, consumers do n’t hold onto fast-fashion items indefinitely. Either the garments malfunctions, or they believe they can discard it because it is so inexpensive. Before tossing a piece of fast-fashion clothes, the typical consumer wears it about seven times.
On a larger size, it’s estimated that 50 billion garments are thrown away within the first year of production and must end up there. It has been reported that 85 percent of discarded clothing is burned or dumped in waste, especially in the United States. Additionally, when viewed through a manufacturing camera, the effects on emissions and water pollution are significant.
According to estimates from the World Health Organization, the fashion industry accounts for 20 % of water pollution worldwide and 10 % of greenhouse gas emissions. According to reports, the textile industry is the second-largest water polluter in the world after agriculture, which is astounding.
David D. Stewart: That’s a lot of influence from one business, I mean. How might income be applied to address this problem?
That’s a really good problem, Nana Ama Sarfo. The main ideas have been discussed in a few different nations, and they center on taxing apparel selling and repair businesses or providing them with positive VAT rates.
A House of Commons commission in the United Kingdom requested that the government put a few taxes steps into effect about four years ago. The U.K. was thinking about imposing a plastics revenue at the time, and it has since.
At the time, the committee recommended that clothing items made with less than 50 % recovered PET]polyethylene terephthalate be subject to the proposed tax. Additionally, the committee recommended that Sweden lessen the VAT on clothes repair services, which the United Kingdom already does. Additionally, they asked the government to enact a garments tax. All of that was not done by the state, but some politicians have just brought it up again. In a scheme activity they released in September, the Progressive Democrat party demanded the same kinds of actions.
For them, a tax would be one cents per garment on fresh clothes that are made for sale in the U. K. market in terms of this. They want those funds set aside for developing and improving garments recycling facilities and clothes collections.
Then there is currently a deliberate cloth levy in Australia that businesses can agree to pay. The American Fashion Council developed it. Both domestically produced and imported clothes are subject to a 4 pence per piece levy.
Despite this, there are reports in the news that clothing manufacturers have been hesitant to approve of this volunteer levy. According to reports, the nation’s economic minister is not pleased with this. According to the American Broadcasting Corporation, she had informed clothes producers that they had a year to consent to this deliberate levy before the country’s government decided to enact its own regulations.
We’re talking a sizable sum of money around, after all. An estimated 36 million AUD may be raised annually by this 4 pence per piece levy.
The German Commission finally has a strategy for sustainable and round garments within the European Union. In order to encourage garments repair and reuse, it is encouraging EU member states to create their own tax policies. However, because the program is new, it is unclear how different nations will react to it.
Sweden had likewise considered enacting a substance excise tax on clothing and footwear in the past, along similar lines. Although fast fashion was n’t specifically mentioned in that plan, it is unquestionably something that would have affected that sector.
The final country is Brazil, which has also expressed worries about e-commerce businesses paying the correct transfer taxes on their supplies.
Low-value foreign e-commerce shipments are free from a national import tax in Brazil, and Brazil is concerned, like authorities in South Africa and the U.S., that these telecommunications companies are shipping their goods in ways that enable them to take advantage of this exemption.
Brazil claims that it is considering resolving this through a digital taxes, which is an intriguing name because it’s not typically what comes to mind when we think of electric taxes.
David D. Stewart: You mentioned earlier that this market was causing concern in the United States. Do any of these remedies seem like ones that could be used in this situation, or is there another option available?
Nana Ama Sarfo: I firmly believe that the price provision should be reinstated. There would n’t be a concern that this could negatively impact American industry because many of the top fast-fashion companies are not American, so I do believe that task could garner bipartisan support.
Beyond that, I believe that state and local clothing levies may be more effective than provincial ones at the national level. With the case of import taxes on beer, we’ve seen that on the local level. There is a 5 cent price on paper bags in New York City.
However, even in those circumstances, I believe that the success of a local tax may depend on whether there are local misuse issues that have been brought to the public’s and lawmakers ‘ attention. Income taxes are the province of states and localities, and I believe that taxes on clothes could be included in this group.
Do you anticipate a drive toward tax solutions to the issues of quick fashion, or is that not always the best course of action? David D. Stewart
Nana Ama Sarfo: I believe that a tax option is quite feasible, especially as administrations get closer to fulfilling their obligations under the Paris Agreement and look for ways to do so.
Regarding the debate over whether or not taxes are the most effective way to address some of the problems we covered, I believe the word “best” is being used a lot because it represents an extremely large bar to cross. Since clothing levies of a few cents per item are n’t going to stop buyers from purchasing already low-priced clothing, I probably would n’talk “best.”
However, I do believe they may provide a solid starting point for addressing some of the issues we previously discussed. For instance, money collected from clothing levies could be used to pay for climate trust funds, clothing recycling initiatives, and other similar initiatives.
David D. Stewart: Well, Ama, I must say that this has been intriguing, and I appreciate you coming to talk about it.
Nana Ama Sarfo: Without a doubt. Dave, it’s often a joy. I appreciate you having me.