Big Shein and Temu price fight

The South African Revenue Service’s (SARS) decision to levy the same duties and taxes on clothing items under R500 as on bigger orders could cost thousands of jobs and leave consumers paying far more for imported items.

This is according to the South African Express Parcel Association’s (SAEPA) CEO, Garry Marshall, whose comments come after an independent petition was started urging SARS to reconsider its decision.

Marshall told The Money Show that the petition already has around 15,000 signatories from consumers who will bear the brunt of the SARS decision.

This is because South African textile and fashion players are struggling to compete against Chinese retail giants like Shein and Temu because they do not have to pay the same import duties as local players.

Local retailers approached SARS and Customs to create a level playing field by taxing Shein and Temu orders at higher rates.

When local retailers import clothing, they pay 45% of the import duty plus value-added tax (VAT).

However, Shein and Temu have been accused of bypassing these taxes by abusing a loophole in the taxation of smaller packages.

Jean-Louis Nel, tax director at Van Huyssteens Commercial Attorneys, explained that packages under R500 are taxed at 20%.

Retailers claim Temu and Shein break up larger orders into smaller quantities and packages to ensure they are under R500.

Once they have benefitted from the lower 20% tax, they combine these orders again before shipping them to clients.

Nel explained that Temu and Shein used the de minimis rule by splitting imports to fall below R500. “That means there is a flat rate of 20% and zero VAT,” he said.

“Retailers are aggrieved by this practice as any imports they do is at 45% plus 15% value-added tax.”

This puts South African retailers under great pressure because consumers will prefer lower-priced items.

To address this issue, from 1 July 2024, SARS and Customs will levy the same duties and taxes on clothing items under R500 as on bigger orders.

The impact of SARS’ decision

Marshall told The Money Show that this decision could have significant negative consequences.

“If this has a major impact on volumes coming into the country, then it will have a big impact on employment in our industry,” he warned.

He explained that they currently have about 100,000 packages a day coming in, of which around 40% are from Temu and Shein.

The average courier driver delivers about 50 packages a day, so there are around 2,000 couriers involved in delivering packages ordered from these online retailers.

“If this decision has a high-level solid impact on volumes coming in, there will be a loss of jobs. It will have a big impact,” he said.

However, Marshall doubts that it will come to that. Instead, he believes South African consumers will be the hardest hit.

“From the courier perspective, other than volumes, the 45% tax makes no difference because we don’t gain anything out of that 45%,” he explained.

“We currently pay a flat 20% for shipments under R500. That’ll go up to 45% plus VAT. So roughly a 39% increase gets passed on to the consumer.”

“So the consumer will feel the pain, not the couriers. We will only feel the pain if the volumes decrease.”

Marshall said the timing of SARS’ decision is also highly problematic, leaving courier companies with less than a month to adjust.

“Suddenly declaring in June that July is going to be affected is a nightmare for us because there are technicalities in how you submit this information and this data,” he explained.

“It’s a nightmare because systems have to be written, systems have to be changed and so on. So that is the bigger problem for us than 45%.”

He said the companies need time to get their systems to process this new way of dealing with duties and taxes.

In addition, he said SAEPA would like to meet with all of the relevant stakeholders involved in the clothing and textile industry and SARS to find a more equitable solution.

“We’ve got 12 days to go, so time is really running out to hold these consultations,” he said.

This article was first published by Daily Investor and is reproduced with permission.

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Big Shein and Temu price fight