Explosive revelation about Temu and Shein in South Africa

Temu and Shein’s logistics partner Buffalo used a 17-year-old South African Revenue Service (Sars) import concession designed for bulk couriers to avoid paying a 45% duty on clothing imports.

That is according to an industry source with over three decades of experience in trade logistics and customs, currently working for a prominent international transport and logistics company.

The expert, who spoke to MyBroadband on the condition of anonymity, said there was a common misconception that Buffalo International Logistics used a so-called “de minimis” provision that allowed for a lower tax rate and no VAT addition on items with a dutiable value less than R500.

Retailers and local textile industry workers previously accused the company of splitting customer orders with a value over R500 into smaller packages and then repacking items together in their storage facilities before shipping them to customers.

However, the expert explained that Section 38(1)(a)(v) of the Customs and Excise Tax Act only allows for a simplified import process on goods to the value of R500.

This specific rule is restricted to goods which are freed of duty as prescribed in Section 1 of the Act. That does not include clothing, which carries a duty of 45% plus VAT.

Therefore, Buffalo would not be able to use this simplified import process.

Instead, the company benefited from a concession list published by Sars in 2007.

One of the concessions allowed couriers to pay a 20% flat rate once a month for high-value, low-volume consolidated shipments coming through OR Tambo Airport, going by its previous name of Johannesburg International Airport (JIA) in the concession list.

The clearance is processed on a DA306 form as opposed to a formal customs declaration (SAD500), the expert said.

Temu and Shein’s volumes unprecedented

They explained that this concession was created for the “bulk” courier business in the past and that the volume of imports that Temu and Shein would create was unforeseen.

Although there was no legal provision for the 20% duty as per the concession, the “concession” effectively became the legislation allowing Buffalo to pay minimal import taxes.

Furthermore, the expert pointed out that Buffalo’s status as an Authorised Economic Operator (AEO) offered no benefit unless the broker (Buffalo) and a registered importer were both AEO-accredited.

“Based on the nature of the clearance, there is no benefit to the courier because of the AEO accreditation,” the expert said. “The bulk of the brokers, including couriers, are AEO accredited.”

Because the issue has drawn the attention of the media, local retailers, and e-commerce platforms, Sars Customs had to find a way to level the playing field.

Sars reportedly plans to levy the full 45% duty and 15% VAT on all clothing parcels, including those under R500, from July 2024.

The expert said that Temu and Shein had also created another challenge for Sars in terms of importer registration.

Legislation was recently amended to permit people to import goods up to a value of R150,000 per year, with no transaction number limits, without registering as an importer.

Previously, it permitted just three import transactions without registration per year.

The expert told MyBroadband that the simplified clearance Buffalo used only contained the customer’s details on the manifest, which the courier holds.

“There is no way to trace if a person has exceeded the threshold of R150,000 or not without a big data audit,” they said. “Customs do not have the capacity to audit on this volume.”