{"id":34206,"date":"2023-11-13T16:17:21","date_gmt":"2023-11-13T16:17:21","guid":{"rendered":"https:\/\/isafespend.com\/personal-finance\/taxes\/the-tax-man-comes-for-fast-fashion\/"},"modified":"2023-11-13T16:17:22","modified_gmt":"2023-11-13T16:17:22","slug":"the-tax-man-comes-for-fast-fashion","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=34206","title":{"rendered":"The Tax Man Comes For Fast Fashion"},"content":{"rendered":"
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First, the tax authorities targeted soda, plastics, and hazardous chemicals with excise taxes. Now they\u2019re coming for fast-fashion companies like Shein and Temu.<\/p>\n

Imposing special taxes on mass-produced $16 party dresses? That seems like a lot of effort for some low-hanging fashion fruit.<\/p>\n

But the fruit may not be as poor quality as it appears \u2014 not for lawmakers eyeing fast fashion as a billowing industry that they can tap for revenue; not for policymakers who see fast fashion as an environmental train wreck; and certainly not for customs officials annoyed that fast-fashion companies are allegedly skirting import tariffs thanks to the cheap value of their goods.<\/p>\n

Fast fashion is a $100 billion industry, and as it grows, authorities are pointing out some red flags about its economic and sustainability practices. Increasingly, they are evaluating how taxation can be used to address or remedy some of their concerns.<\/p>\n

The E-Commerce Problem: Tariffs<\/h2>\n

Fast-fashion companies like Shein have recently come under scrutiny in South Africa and the United States for allegedly bypassing customs duties because of the low cost of their shipments.<\/p>\n

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South Africa charges tariffs of 40% to 45% on clothing, but officials say the company is paying half of that rate \u2014 or even a quarter of it \u2014 by shipping its clothing in smaller packages, according to local reports.<\/p>\n

In March South Africa\u2019s Department of Trade, Industry and Competition announced that it opened an investigation into Shein\u2019s practices. The department hasn\u2019t released the details of that investigation, nor has it yet made any findings.<\/p>\n

In June a U.S. House committee released a report accusing Shein and its competitor Temu of taking advantage of a de minimis tariff exemption. In the United States, importers are exempted from paying customs duties on packages valued under $800 under section 321 of the Tariff Act of 1930.<\/p>\n

Millions of packages enter the country under this exemption \u2014 685 million in 2022 alone, according to the report. About 30% of those packages came from Shein and Temu, as the two ship nearly 600,000 packages daily to the United States, House lawmakers found.<\/p>\n

The problem, according to the report, is that most Shein and Temu packages are direct-to-consumer shipments, not bulk shipments. Because of this, they usually are worth less than $800 and can enter the country duty free.<\/p>\n

Shein, on its end, surprisingly agrees that the de minimis exemption should be updated. Shortly after the House committee report, Shein sent a letter to the American Apparel & Footwear Association asking the group to lead the way on reform efforts. The company is largely concerned about supply chain management \u2014 specifically, the apparent lack of a universal supply chain management standard.<\/p>\n

According to Shein, retailers are shipping products to the United States that do not follow responsible sourcing and manufacturing practices, and it believes that the de minimis exemption should incorporate some qualitative requirements.<\/p>\n

The E-Commerce Problem: Environmental Impact<\/h2>\n

Just how worrisome are the environmental impacts of fast fashion? It used to be that retailers produced four fashion cycles per year. Now, fast-fashion companies produce 50 or more cycles per year. This amounts to 100 billion items of clothing produced annually.<\/p>\n

To put it in context, this is almost double the annual amount before 2000, according to a report from the U.S. National Institute of Standards and Technology (NIST). Consumers aren\u2019t holding on to these clothing pieces for long: the average consumer wears a piece of clothing about seven times before tossing it, the report said. On a larger scale, over 50 billion garments are discarded within a year of being made.<\/p>\n

Resale programs offered by fast fashion retailers like Shein and Zara are laudable, but they\u2019re not particularly effective at reducing carbon emissions, because demand for secondhand fast fashion is not high \u2014 at least, not high enough to reduce the rate at which retailers produce new clothing, according to research by resale solutions company Trove.<\/p>\n

Most of this excess clothing is winding up in landfills. For example, in the United States, 85% of discarded clothes are sent to landfills or incinerated, the NIST report said.<\/p>\n

Also, the emissions and water pollution effects are high: The fashion industry is reportedly responsible for 10% of global greenhouse gas emissions. The textile dyeing process accounts for 20% of water pollution, and the fabric industry is the second largest water polluter globally, behind agriculture, according to the World Health Organization.<\/p>\n

Potential Tax Solutions<\/h2>\n

United Kingdom<\/h3>\n

In the United Kingdom, the Liberal Democrats want lawmakers to extend the country\u2019s virgin plastics tax to textile products and implement several other tax policy measures, according to a policy motion issued by the party.<\/p>\n

According to the Liberal Democrats, the environmental footprint that fast fashion leaves behind is too big to ignore. They\u2019re worried about the fact that U.K. consumers purchase more new clothing per year than those in any other European country at 26.7 kilograms per capita, according to the motion.<\/p>\n

They\u2019re also concerned about fabric waste, which accounted for 800,000 tons of waste in the United Kingdom in 2016, and 700,000 tons in 2012. Globally, they\u2019re concerned about greenhouse gas emissions and water pollution.<\/p>\n

The motion has 13 points, and tax accounts for three of them:<\/p>\n