Big tax hikes for Temu and Shein clothing orders in South Africa

Low-value and small-volume orders of clothing from Temu and Shein will start getting slapped with higher taxes from next month, Business Times reports.

The Foshini Group (TFG) CEO Anthony Thunström told the publication that the South African Revenue Service (Sars) has committed to tax all clothing parcels with an import duty of 45% plus VAT from 1 July 2024.

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

The change comes after local clothing retailers and stakeholders in the textile industry accused the Chinese companies of exploiting a tax loophole that kept their import prices low.

The so-called de minimis rule had allowed Shein and Temu to get clothing parcels of under R500 through customs with a 20% import duty and 0% VAT.

Clothing retailers complained that they always had to pay the 45% plus VAT rate for imported clothes, putting them at a disadvantage to direct-from-China importers like Temu and Shein.

39% price increase on sub-R500 orders

To illustrate the impact of the change, consider the example of an R100 clothing order from Shein or Temu.

Previously, this order would only attract an additional R20 in tax and no VAT.

Following the change, getting the same item through customs will require paying a R45 import duty and R21.75 in VAT.

The total price of the order will now be R166.75 instead of R120, a 39% increase.

The table below illustrates how the 45% plus VAT tax for clothing orders below R500 will impact the effective prices of Shein and Temu orders.

Trade and industry minister Ebrahim Patel recently told textile industry workers that the government wanted to confront online retail platforms that used tariff loopholes to undermine locally-produced goods.

Patel said Temu and Shein’s growing dominance was one of the local textile industry’s biggest import-related challenges.

The trade department started investigating whether the companies were skirting any tax laws last year.

National Clothing Retail Federation executive director Michael Lawrence has also flagged what he deemed to be suspicious practices by Temu and Shein with Sars.

Lawrence alleged that the companies or their local agent, Buffalo Logistics, exploited tax and customs loopholes to cheaply import their products into South Africa.

Temu and Shein denied that they were dodging tax and emphasised that their low prices were due to their business models, which enable them to procure products directly from factories or suppliers in China.

While much of the local industry has complained that they are unable to compete with this model, one South African e-commerce player — Zando — has embraced this approach.

It has also partnered with Buffalo Logistics to handle international shipping and customs clearance in South Africa for its recently launched Zando Global clothing importing service.

Other major online retailers, like TFG’s Bash, contend that the quality of their products and the fact that they carry popular brands gave them an edge over Shein and Temu.

It is important to note that this development only impacts clothing imports.

As it stands, there have been no adjustments in import duties for other goods like small electronics, which are cheap and popular on Temu.