Temu and Shein tax problems in South Africa

South African Shein and Temu customers have been struggling to estimate how much they can expect to pay in import taxes on their orders following changes made by the taxman over the past two months.

MyBroadband has analysed a dozen orders from this period in which the taxes due on purchases from the Chinese e-commerce giants varied greatly despite packages often having the same or similar values and items.

Since they started gaining traction in South Africa, local retailers and the textile industry have complained that Shein and Temu were exploiting certain tax loopholes that enabled them to significantly undercut South African businesses on pricing.

The loophole turned out to be a South African Revenue Service (Sars) concession for low-value imports below R500, introduced in 2007 to enable a simplified package clearance process.

It enabled Shein and Temu to charge their customers a flat duty of about 20% of their order’s value, including clothing items normally taxed at 45% plus 15% VAT.

To address concerns raised by local manufacturers and clothing retailers, the South African Revenue Service (Sars) announced certain changes to its import tax rules in August 2024.

The first was an interim adjustment to levy 15% VAT on all imports with a value under R500 on 1 September 2024. That was in addition to a flat duty of 20% that had previously been the only tax applied to these parcels

Sars also said it planned to apply new import taxes according to guidelines set by the World Customs Organisation (WCO) from 1 November 2024.

However, the tax agency has yet to publicly release its de minimis and full declaration threshold values, which are required to apply the WCO guidelines.

Meanwhile, South African customers of Shein and Temu have complained about excessive and confusing taxes on their orders since the addition of VAT in September 2024.

MyBroadband assembled 12 Shein and Temu orders from six customers since September 2024 and found that the effective tax rates varied between 8.11% and 95.58%.

On sub-R500 orders where the 15% VAT and 20% flat duty are applied, the effective tax rate should be around 38%.

Of the three orders valued under R500, two did not include clothing items and had effective tax rates of 33.89% and 39.56%, respectively.

The one order that did contain clothing was taxed at 60.11%.

That suggested that the higher 45% tax on clothing items applied to this order, despite Sars previously stating it had not yet implemented the 45% tax on packages containing clothing valued under R500.

While the exact taxes would be calculated based on how many items of clothing are in a particular package, the sub-15% import taxes on two Temu and one Shein orders are curious.

The bare minimum tax should be 15% when considering South Africa’s VAT, which should apply on all orders regardless of value.

The table below summarises the value and tax details of 12 Shein and Temu orders placed in September and October 2024, ordered by effective tax rate.

Sars not clearing up details

The WCO guidelines Sars said it would start implementing from 1 November 2024 standardise the processing of e-commerce goods.

It is based on the principle that the operator provides information to customs in advance of the goods’ arrival.

These guidelines require that operators like Shein and Temu classify goods under one of four distinct categories prior to import:

• Category 1: Correspondence and documents — No commercial value, not subjected to duties and taxes, immediate release on the basis of a consolidated declaration that may be oral or written (a manifest, a waybill or an inventory of such items).
• Category 2: Low-value consignments below a specified de minimis threshold — No duties and taxes are collected, and immediate clearance and release are done against a manifest, a waybill, a house waybill, a cargo declaration, or an inventory of items.
• Category 3: Low-value dutiable consignments (simplified goods declaration) — Goods above de minimis, but below full declaration value threshold, dutiable, and the use of a simplified declaration, or release against a manifest with subsequent simplified clearance.
• Category 4: High-value consignments (full goods declaration) — Consignments not falling under the three categories described above and includes consignments containing goods that are subject to restrictions. Normal release and clearance procedures, including payment of duties and taxes, apply.

From the above, it is evident that South Africans will first need to know the precise values of the de minimis and full declaration threshold before they can estimate how much they will pay in taxes.

MyBroadband asked Sars for details on these values, but it only pointed us back to its original August 2024 announcement on the revised taxes, which lacked details on the WCO guidelines.

The mystery surrounding the calculations behind taxes on Shein and Temu orders could discourage South African shoppers from using the stores.

Other retailers, like Amazon.com, remove the guesswork by charging taxes on the order itself and taking on the risk of underestimation while also compensating buyers for overestimations.