Taxman cracks down on Temu and Shein in South Africa

The South African Revenue Service (Sars) has announced interim tax changes that will impact e-commerce players like Shein and Temu from 1 September 2024.

It will charge VAT on top of the flat 20% duty these importers currently pay. Further, permanent changes will follow in November.

The announcement comes after Sars delayed the implementation of a 45% plus VAT import duty to address companies like Shein and Temu undercutting local clothing retailer prices.

“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,” Sars said in a statement on Friday, 9 August 2024.

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

Sars noted “legitimate concerns” expressed regarding the import of several goods, mainly clothing, via e-commerce.

“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.

It acknowledged that the issues stem from a Sars customs concession for packages valued at less than R500, where importers paid a flat rate of 20% instead of customs duties and tax.

To address the issues, Sars is making several changes that are aligned with the World Customs Organisation (WCO) framework.

In early 1990, the WCO developed a set of release/clearance procedures known as the “WCO Guidelines on Immediate Release”.

The guidelines are aimed at standardising the processing of e-commerce goods and include the categorisation of goods into four distinct categories:

Category 1 — Correspondence and documents — No commercial value, not subject to duties and taxes, immediate release based on 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 for which no duties and taxes are collected and immediate clearance and release 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, etc.

Category 4 — High-value consignments (full goods declaration) — Consignments not falling under the three categories described above and include consignments containing goods that are subject to restrictions. Normal release and clearance procedures, including payment of duties and taxes, apply.

Sars will introduce VAT in addition to the current 20% flat customs duty rate by 1 September 2024. It will then reconfigure the 20% flat rate into the WCO regime for the first three categories from 1 November.

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

He said Sars will turn to “the greater use of data, artificial intelligence, machine learning and algorithms to better facilitate trade while minimising 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 said Sars is clamping down on these unfair advantages as it catches up on updating tax rules and administration services.

He added that South Africa’s tax rules and administration processes aren’t geared for the era of online shopping.

When they were first developed, “it was a couple of people buying from Amazon.com and Alibaba ,” said Kieswetter.

Kieswetter said shopping habits have shifted since, and Sars needs to modernise its processes.