Good news for Shein and Temu in South Africa

The South African Revenue Service (Sars) has delayed the implementation of a 45% tariff on importing clothing products to South Africa, designed to address the tax loopholes exploited by Temu and Shein.

This is revealed in a statement from the South African International e-commerce Association (SAIEA), which says it received correspondence from Sars highlighting the need for further stakeholder engagement.

“The decision by Sars to apply a 45% tariff on imported clothing products has been put on hold until further notice,” says SAIEA.

It added that Sars’ further stakeholder engagements will aim to ensure trade and system readiness in South Africa’s e-commerce sector.

SAIEA chairperson Dudley Filippa welcomed the decision, saying the organisation fully supports the implementation of the tax.

“However, it is equally important that internal systems and software tools are sufficiently geared for the new process,” said Filippa.

“Ultimately, we hope that the envisaged engagement with Sars will create a conducive environment for the advancement of e-commerce overall in South Africa.”

The decision to implement the duty on all clothing imports came after players in South Africa’s textile industry accused Shein and Temu of exploiting tax loopholes.

While the Chinese e-commerce giants have denied the accusations, Sars commissioner Edward Kieswetter recently revealed that the import loopholes have resulted in fiscal losses of around R3.5 billion.

He vowed to clamp down on such unfair advantages as Sars catches up on updating tax rules and other processes.

Kieswetter said Sars’ administrative processes were designed before e-commerce started booming in South Africa.

“It was a couple of people buying from Amazon.com and Alibaba,” he said.

South African residents’ shopping habits have shifted significantly in recent years, and Sars is busy modernising its processes.

While local retailers had alleged that Shein and Temu exploited a de minimis rule, this isn’t accurate.

They said the de minimis rule enabled the Chinese retailers to import clothing parcels with a value of less than R500 with just an import duty of 20% and no value-added tax (VAT).

This gives them an advantage over local retailers, who are forced to pay 45% plus VAT on all clothing imports.

However, an anonymous industry expert told MyBroadband that the claims of Temu and Shein exploiting the de minimis rule are false.

Instead, their local logistics partner, Buffalo International Logistics, benefited from a Sars concession published in 2007, allowing it to pay a flat monthly rate of 20%.

To remedy this, Sars planned to implement a 45% plus VAT duty on all clothing imports to South Africa from 1 July 2024, but it appears it has yet to take effect.

Foschini Group CEO Anthony Thunström believes a level playing field will provide a big boost for local retailers.

“It’s a big move, and I think it will help local industry, including local production and jobs,” he said.

Following Sars’ initial announcement, many South African consumers who benefited from Shein and Temu’s low pricing voiced their frustration, and some launched a petition to attempt to get Sars to reconsider.

SAIEA mentioned this in its statement.

“The announcement to discontinue the small parcel exemption, was met with strong resistance from consumers who took to social media to vent their frustration culminating in a petition that garnered nearly 20,000 signatures,” it said.

“Shein and Temu provide a lifeline for low-income households, university students and pensioners allowing them to purchase clothing and other items at affordable prices.”

Launched on 10 June 2024, the petition had garnered nearly 21,500 signatures as of Thursday, 1 August.

The petition argues that South Africans can’t afford the planned tax increase.

“We buy from Shein and Temu because we cannot afford clothes from local businesses. The point of Shein and Temu is affordability,” it reads.

However, National Clothing Retail Federation executive director Michael Lawrence says claims that the tax hike will hurt vulnerable consumers in South Africa isn’t entirely correct.

Lawrence said people who can make online credit card purchases on these sites aren’t vulnerable consumers.

“We’re talking about a fundamentally middle-class consumer here,” he said.

MyBroadband attempted to test the new tax for Shein and Temu orders by comparing orders placed before and after its implementation.

However, the results were puzzling. Our first orders from Temu and Shein, placed in mid-June, were subject to tax amonts of 27% and 48%, respectively. Both were significantly higher than the 20% customers were reportedly charged.

Moreover, the tax paid on the same items ordered on 8 July 2024 were significantly lower than expected, considering the 45% plus tax duty was meant to have been implemented.

The second round of orders through Temu and Shein were subject to customs duties of 17% and 59%, respectively.

If the new duty had been implemented as planned, we expected to pay between 60% and 66.75% in import duties, depending on whether or not the duty is calculated inclusive of VAT.