Bad news for Shein and Temu shoppers in South Africa

Prices for products from Shein and Temu may rise significantly following the implementation of a flat 20% customs duty alongside VAT of 15% on imports of clothing worth more than R500. 

The South African Revenue Services (SARS) said in a statement that this flat customs duty will be levied in addition to 15% VAT. 

Prior to this change, Shein and Temu deliberately broke up bigger orders into import packages worth less than R500 to take advantage of the flat 20% customs duty and avoid paying VAT. 

Jean-Louis Nel, the tax director at Van Huyssteens Commercial Attorneys, highlighted that packages valued below R500 are subject to a 20% tax rate.

Retailers argue that Temu and Shein strategically break down larger orders into smaller parcels to remain under the R500 threshold.

After taking advantage of the lower 20% tax rate, these parcels are consolidated again before being shipped to customers.

Nel explained that Temu and Shein exploit the ‘de minimis’ rule by dividing imports to stay under the R500 limit. “This results in a flat 20% tax rate and no VAT,” he said.

“Retailers are upset by this tactic because their imports are taxed at 45% plus an additional 15% value-added tax,” Nel stated.

This practice places substantial pressure on South African retailers, as consumers are likely to favour lower-priced products.

Late on Thursday, 8 August, SARS announced the imposition of a temporary measure to level the playing field, ending weeks of speculation regarding the implementation of a 45% VAT duty. 

From 1 September, the taxman will apply a flat 20% customs duty, in line with global standards, in addition to VAT of 15% on all clothing imports valued below R500. 

“SARS noted legitimate concerns that have been expressed in the importation of several of goods, especially clothing, via eCommerce by a number of importers who have not been paying the obligatory customs duties and VAT on these imports, resulting in unfair competition with other industry players,” it said in a statement.

SARS Commissioner Edward Kieswetter said the tax agency will partner with the Department of Trade, Industry and Competition (DTIC) to build public trust by seeking opportunities to level the playing field to protect local industries and create business opportunities for economic growth.

He said that SARS will resort to “the greater use of data, artificial intelligence, machine learning and algorithms to better facilitate trade while minimising risks to the economy”.

The revenue service said it “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”.

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