Temu and Shein tax fight in South Africa

The South African International eCommerce Association chair has said that postponing the implementation of the 45% duty on Temu and Shein clothing products is not meant to benefit the Chinese retailers.

Until now, Chinese clothing retailers have taken advantage of a 2007 South African Revenue Service (SARS) concession, which has allowed packages below R500 to be imported with a 20% duty and no VAT.

SARS recently confirmed that a 45% blanket tariff on clothing that was supposed to be implemented on 1 July 2024 is being delayed because the tax body is looking to workshop the duty before fully implementing it.

However, Dudley Filippa, the SAIEA chair, has said that the decision to workshop the tax is for the benefit of consumers.

He said this was because the consumers who benefit from the inexpensive clothing offered by Temu and Shein will be affected if the tax is implemented.

South African consumers lashed out at the news of the duty that would be applied to Temu and Shein orders, creating petitions and arguing that “South Africans cannot afford this.”

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

Filippa also pointed out that the two Chinese retailers’ entry into the South African market “created jobs for thousands of people” by allowing them to start their own courier businesses, for instance.

However, National Clothing Retail Federation executive director Michael Lawrence firmly disagrees with this perspective. He says SARS funds the market competitor by not collecting the whole duty from Temu and Shein.

According to Lawrence, South African clothing retailers have had to pay the full 45% import tax, while Temu and Shein have managed to exploit the concession.

Lawrence said the jobs Filippa referred to by would be created anyway, and those in danger are those within the local clothing manufacturing sector and in the more mainstream retail industries.

“We do have a substantive problem with the fact that this is a commercial disrupter, that SARS is, in fact, playing in a commercial space, and needs to charge the same tax for everyone,” Lawrence said.

Lawrence also challenged the statement that people who can make card purchases online are vulnerable consumers.

“We are talking about a fundamentally middle-class consumer here,” Lawrence said in an earlier interview.

He argued that his organisation represents “far more vulnerable consumers” in the retail world, many of whom are employed within the manufacturing sector and positively affected by the taxes.

“What is true, of course, is that the household purse for all segments of the population has been under substantive stress for the last decade.”

Lawrence acknowledged that this is an uncomfortable period for consumers but that they must look at the big picture.

One of the main reasons for these duties to be placed on low-value and small-volume imports is to protect the local clothing industry, which cannot compete with the pricing models employed by Temu and Shein.

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.

Following Sars’ announcement that it would close the loophole Shein and Temu were using, many South African consumers 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 by publication.