The South African Revenue Service's (SARS) introduction of an unexpected tax on PC monitors will see prices shoot up dramatically by the time screens hit the shelves, but the channel isn't clear as to which screens attract the additional duty.
From the beginning of last month, a 7% ad valorum tax, which was scrapped in 2004, was brought back into effect “based on the assumption that they were used as computer screens”.
However, monitors bigger than 45cm also attract an additional 25% duty over and above the 7%, which adds a total of 32% onto prices even before monitors hit the shelves and distributors have added their markup to the products.
The sector has been thrown into chaos as a result of the additional tax, which wasn't expected, but quietly communicated in a government gazette issued at the end of March. In addition, there is confusion within the sector as to exactly which monitors attract the duty, and contention with SARS over how it measures monitors.
The net effect will result in monitor prices increasing dramatically as the channel simply can't afford to absorb the extra cost.
Chaos reigns
Bennie Budler, Samsung product manager, says from 1 April, an additional 25% duty kicked in on monitors bigger than 45cm. He says, however, industry is contesting the duty because SARS is not measuring monitors from corner-to-corner, which is industry standard, but edge-to-edge.
The tax applies to all monitors bigger than 17.7 inches, based on converting 45cm back to imperial measurements, which are used throughout the sector. However, Budler says the measurement is applied incorrectly, and should only affect monitors bigger than 20 inches.
“Vendors cannot absorb these huge duties that have been applied by the government,” Jadhu says, and will be forced to pass the additional costs down the chain. She expects sales of higher-end units to decline.
No choice
Darryl Squara, GM of Tarsus' Samsung business, says the channel has no choice but to pass on the additional tax, because it operates on a wafer thin margin and simply can't afford to absorb the increase. “The bottom line is, there is a duty and it has to be passed on.”
While customs doesn't seem sure about which monitors attract the tax, the net effect of the duties will see screens increase in price by as much as 35%, says Squara.
The impact has yet to hit shelves, because shipments are being held back at customs due to confusion around exactly which monitors attract the tax, says Squara. He adds end-users will start feeling the impact in about two months once there is more clarity, as shipments started coming through this month.
In the short-term, sales will drop off until people are forced to replace monitors and get used to higher prices in a segment of the market where costs were coming down, Squara adds.
Wait and see
Yesh Surjoodeen, country category manager for HP SA's Personal Systems Group, says it's still too early to say what effect the additional tax will have, but the company expects it to impact higher-end monitors.
Surjoodeen says passing the additional cost onto consumers depends on the unit and flexibility within the pricing model. He says there needs to be a balance between profitability and demand of each monitor.
In future, says Surjoodeen, the higher tax is likely to drive demand for 20-inch monitors. “There is a price point a customer will pay for a monitor and beyond a certain price point it will not be purely about screen size, but about affordability.”
Hannes Fourie, senior analyst of systems and infrastructure solutions at research house IDC, says sales will be affected from this quarter onwards, as consumers will hold off on replacing monitors, which are viewed as luxury items. He expects the channel to start bundling free items with monitors, such as low-price mouses and keyboards, to bolster sales.
IDC estimates that about a million monitors are sold every year in SA, and about two million desktops and notebooks are bought each year. The market is worth at about $200 million - or R1.35 billion, says Fourie. He points out 75% of monitors sold in SA are smaller than 20 inches.
SARS didn't respond to a request for comment.
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