Temu and Shein crackdown in South Africa

Trade, industry, and competition minister Ebrahim Patel says the South African government wants to confront international online retailers accused of exploiting tariff loopholes to undermine local stores.

According to a Sunday Times report, the minister believes that one of the biggest import-related challenges for local retailers is getting to grips with the dominance of Temu and Shein.

Patel said it is critical to address the emergence of such platforms to ensure equality in South Africa’s online retail space.

This includes ensuring that everyone pays full customs duties and VAT so that the country doesn’t suffer due to regulatory gaps.

Stores like Temu and Shein allegedly exploited import duty and tax loopholes in South Africa, effectively undermining local retailers.

In late April 2024, Takealot Group CEO Fred Zietsman explained that third-party sellers on platforms like Takealot are forced to pay import duties and taxes for imported products.

However, he said some “new players” don’t adhere to these regulations.

Ebrahim Patel, minister of Trade, Industry, and Competition

“If I’m a third-party selling on Takealot’s marketplace, I import my goods from abroad, and I pay my import duties, VATs, and tariffs, which puts an inflationary part into my pricing,” said Zietsman.

“I think it’s clear if you read the media that some of the new players don’t necessarily follow that.”

He added that Takealot was engaging with governmental and non-governmental institutions to address the issue, which he said negatively impacts the South African economy.

“If you’re a business selling into our country but you don’t put up any physical infrastructure [locally] and you don’t employ anyone locally, that’s maybe a net loss to the country as opposed to a gain,” said Zietsman.

National Clothing Retail Federation (NCRF) executive director Michael Lawrence, in February 2024, made similar accusations.

He said companies like Temu and Shein can import their products to South Africa cheaply through such loopholes.

According to Lawrence, the practice undercuts local retailers, threatens local jobs, and limits revenue collection for the country and local stores.

Lawrence said the NCRF had flagged these issues with the South African Revenue Service.

Frederik Zietsman, Takealot Group CEO

“Our concern with offshore online services is that they are not paying the correct duties and VAT. So, our national revenue is implicated, and our local producers are disadvantaged,” he said.

It is important to note that companies like Temu and Shein might not be entirely to blame.

Lawrence explained that their local courier and service provider partners tend to report their duties and taxes to the South African Revenue Services incorrectly.

The government levies a 45% tax and VAT on imported clothing to protect local manufacturers against cheap exports that could threaten their businesses.

However, according to first-hand tests conducted by the NCRF, the taxes applied to packages can work out to as little as 10% of the item’s value.

Temu dismissed the allegations, saying it doesn’t list duties and taxes with pricing in its South African store because they are only imposed by local authorities when the parcels arrive on South African shores.

“In our commitment to providing the best service to our customers and adhering to local customs laws, Temu collaborates with a reputable logistics company with extensive experience in e-commerce packaging,” Temu said.

“The logistics company acts as our customers’ agent with the local customs and tax authorities to clear the package, process, and remit applicable taxes.”