Blow to Temu and Shein in South Africa

The price South Africans pay to get their products from Temu and Shein is set to increase significantly starting next month.

This is because the South African Revenue Service (SARS) and Customs are set to change how they handle small orders coming into South Africa.

From 1 July 2024, clothing items imported into the country valued at less than R500 will carry the same duties as bigger orders.

Clothing imports above R500 in South Africa are subject to a 45% import duty plus value-added tax (VAT).

To date, parcels shipped to South Africa with a value under R500 have been treated differently and carried far smaller customs duties.  

Many South African companies accused Shein and Temu of abusing this rule by breaking up larger orders into smaller quantities and packages.

After paying customs duties and taxes, they would combine these smaller packages into a larger order before shipping it to their South African client.

This eCommerce loophole gave Temu and Shein an unfair pricing advantage over South African retailers.

National Clothing Retail Federation (NCRF) executive director Michael Lawrence said they had flagged these issues with SARS.

Lawrence said their research showed that the Chinese eCommerce giants are not paying duties on their imports and are avoiding paying VAT where it should be applied.

“Our concern with offshore online services is that they are not paying the correct duties and VAT. Our national revenue suffers, and our local producers are disadvantaged,” he said.

“There have not been any invoices that show the correct revenue collection from authorities concerning VAT and tariffs at this point.”

Daily Investor analysed a few invoices from Temu and Shein, and the customs and VAT charges of orders above R500 were between 14% and 19%.

From 1 July 2024, these orders may attract much higher duties, making Temu and Shein’s pricing less attractive.

Business Times reported that TFG CEO Anthony Thunström said South African retailers have been working with SARS around this issue.

They approached the revenue service and customs authorities to ensure they compete on a level playing field against the Chinese eCommerce giants.

When a company like TFG imports clothing, they pay 45% import duty plus value-added tax (VAT). This should now also be applied to smaller orders.

“From 1 July 2024, those parcels below R500 that were attracting minimal duty will now be taxed at the exact same rate of 45% plus VAT,” Thunström told Business Times.

He described it as a big move that would help the South African clothing industry, including local manufacturers, and create jobs.

He is confident that TFG, through its Bash platform, will be able to compete on a level playing field with the Chinese eCommerce powerhouses.

In its latest financial results, TFG said its online shopping platform Bash is expected to break even ahead of schedule.

With continued investment in Bash, online retail turnover grew by 44.4% and now contributes 4.2% to retail turnover.

TFG CEO Anthony Thunström said Bash’s strong performance means its breakeven point has been brought forward.

“Bash is now the number one South African fashion and lifestyle app and saw a 45% increase in first-time shoppers,” he said.

Temu previously said it was committed to complying with local laws and regulations in the markets where it operates.

“For South Africa, the displayed prices of goods on Temu South Africa do not include import duties and taxes,” it said.

It explained that local authorities will impose applicable taxes on customers upon the arrival of the package.

“In our commitment to providing the best service to our customers and adhering to local customs laws,” it said.

“Temu collaborates with a reputable logistics company with extensive experience in e-commerce packaging.”

“The logistics company acts as our customers’ agent with the local customs and tax authorities to clear the package, process, and remit applicable taxes.”

A Shein spokesperson said prices displayed on the Shein website include applicable taxes. “We pay customs duties, which for imported clothes can range from 30% to 45%,” she said.

She added that they work with local agents to declare items according to the appropriate World Customs Organization Harmonized System (WCO HS) codes.

Shein said its orders do not benefit from any favourable tax treatment compared to other offline or online retailers.

They said another common misconception was that it could only offer such low prices by dodging local import taxes.

“Contrary to common misperceptions, we keep prices affordable through our technology-based on-demand business model and flexible supply chain,” Shein said.

“This reduces inefficiency, helps us to lower wastage of material, and reduces our unsold inventory. We pass this cost advantage to our customers.”