Shein and Temu tax crackdown hits a snag

South African e-commerce giant Takealot has been silent about the South African Revenue Service’s (Sars) delayed implementation of a 45% plus VAT import duty for clothing products.

MyBroadband asked the retailer for comment after the news broke, but it hadn’t answered our questions by publication.

South African retailers have felt hard done by international platforms like Shein and Temu exploiting tax loopholes to undercut their pricing.

To address this, Sars promised to implement a 45% plus VAT import duty on all clothing products brought to the country from 1 July 2024 to level the playing field.

However, earlier this month, the South African International e-commerce Association (SAIEA) revealed that Sars had confirmed that the duty’s implementation was delayed.

Sars highlighted the need for further stakeholder engagement before it can enforce the new duty.

“The decision by Sars to apply a 45% tariff on imported clothing products has been put on hold until further notice,” said SAIEA.

It explained that Sars wanted to ensure trade and system readiness in South Africa’s e-commerce sector through further stakeholder engagement.

The organisation welcomed Sars’ decision, with chairperson Dudley Filippa adding that SAIEA fully supports the implementation of the tax.

“However, it is equally important that internal systems and software tools are sufficiently geared for the new process,” said Filippa.

“Ultimately, we hope that the envisaged engagement with Sars will create a conducive environment for the advancement of e-commerce overall in South Africa.”

In its annual results for the year ended 31 March 2024, Takealot called for reform within the e-commerce sector to support South Africa’s localisation efforts and fair competition.

“The rise of e-commerce platforms such as Shein and Temu in South Africa underscores a growing concern that threatens the nation’s reindustrialisation and localisation efforts,” Takealot said.

While Shein has been available in South Africa for a while, Temu launched locally in January 2024. Both platforms have recently seen immense success in the South African market.

This is primarily due to them offering lower prices than South African retailers, which prompted accusations that the Chinese companies were exploiting import tax loopholes to undercut local retailers.

Takealot also accused the retailers of exploiting loopholes and outdated tax laws.

“These e-commerce platforms exploit outdated regulations and loopholes by using shipping methods that allow them to offer products at exceptionally low prices while avoiding duties, taxes and other government fees imposed on conventional retailers,” it said.

Both Temu and Shein have denied these allegations. However, according to Sars commissioner Edward Kieswetter, import tax loopholes have resulted in fiscal losses of roughly R3.5 billion.

Kieswetter promised to crack down on such practices while Sars catches up on updating tax rules and other processes for the age of e-commerce.

Many local retailers accused Temu and Shein of exploiting the de minimis rule — a provision that allowed for a lower tax rate and no VAT addition on items with a dutiable value less than R500.

However, an industry source with over three decades of experience in trade logistics and customs told MyBroadband that this isn’t accurate.

Instead, Shein and Temu’s logistics partners made us of a concession published by Sars in 2007.

The nearly 20-year-old concession allows couriers to pay a flat rate of 20% per month for high-value, low-volume consolidated shipments through OR Tambo International Airport.

While many local retailers, who have continued to pay 45% plus VAT on textile imports, favour the new import duty, many consumers don’t.

Foschini Group CEO Anthony Thunström previously said the new tax will help level the playing field for South African retailers.

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

However, consumers who had benefitted from Shein and Temu’s lower pricing were up in arms, with some launching a petition to block the implementation of the tax.

“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,” said SAIEA.

“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.”

Many have argued that they shop on the Shein and Temu platforms because they can’t afford clothing from local retailers.

However, National Clothing Retail Federation executive director Michael Lawrence slammed these claims. He said customers shopping online with credit cards aren’t vulnerable consumers.

“We’re talking about a fundamentally middle-class consumer here,” said Lawrence.

Lawrence said the truly vulnerable in this situation are the people in the local textile industry whose jobs are at risk if the tax loophole isn’t closed.