South Africa’s Temu and Shein tax crackdown

Law firm Webber Wentzel believes the import duty changes implemented by the South African Revenue Service (SARS) in the coming months will make importing small, low-value items less economically attractive.

It also says the move will have a marked impact on South African consumers who frequently shop through international online stores like Shein and Temu.

SARS’ first round of adjustments took effect on 1 September 2024, adding VAT to the flat 20% import duty companies like Shein and Temu were subject to.

The 20% rate will then be restructured on 1 November 2024 to align with the World Customs Organisation (WCO) framework.

According to a statement from several Webber Wentzel legal representatives, the adjustments are designed to discourage frequent, low-value imports that contribute to inefficiencies and unfairness in the local market.

“Customs duties are calculated based on the declared value of the goods, including any applicable shipping costs and insurance. SARS has adjusted the duty rates to make importing small, low-value items less economically attractive,” they said.

They explained that import VAT is calculated based on the total value of goods and customs duties, with a 10% upliftment in customs duty value.

“This 10% upliftment represents an amount in lieu of shipping and insurance costs,” they added.

The representatives warned that the changes could result in effectively increasing the VAT rate for certain categories of imported goods due to higher customs duty rates.

“SARS has justified the increased duty rates as a broader strategy to promote local businesses, by making international imports more costly, particularly small, frequent orders that can disrupt local markets and supply chains,” they said.

“This decision is expected to impact many South African consumers who frequently shop in these international online stores.”

However, this should encourage consumers to shop from South African retailers, benefiting the domestic economy and creating more opportunities for local businesses while reducing market clutter.

The move will also mitigate the strain placed on the local customs system and streamline the processing of imports.

While there is significant potential for growth in South Africa’s clothing industry, consumers still buy more through international platforms than they do from local retailers.

For reference, SARS’ trade statistics for June 2024 show that China is the primary source of textile imports for South Africans, with an average monthly import value of around R4.2 million.

SARS announced the tax changes in a statement on 9 August 2024.

“The South African Revenue Service remains committed to providing clarity and certainty in the implementation of its mandate of promoting legitimate trade for the economic development of the country in an era of rapidly expanding e-commerce,” it said.

“This will be achieved by making it simple and easy to facilitate an increased movement of goods.”

It noted that there were legitimate concerns about the import of goods, mainly clothing, through international e-commerce platforms.

“A number of importers have not been paying the obligatory customs duties and VAT on these imports, resulting in unfair competition with other industry players,” said SARS.

SARS commissioner Edward Kieswetter said the organisation will collaborate with the Department of Trade, Industry, and Competition, and other industry players to build public trust through opportunities to protect local industries and businesses.

This will include a greater use of data, artificial intelligence, machine learning, and algorithms to facilitate trade while mitigating risks to the economy.

Kieswetter recently revealed that tax loopholes exploited by international e-commerce players had resulted in fiscal losses of approximately R3.5 billion.

He explained that when South Africa’s tax rules and administration processes were first developed, online shopping wasn’t popular, with a few people buying from players like Amazon.com and Alibaba.

As a result, it isn’t geared for the era of e-commerce. Kieswetter noted that shopping habits have shifted, requiring SARS to modernise its processes and clamp down on those abusing loopholes.