Shein and Temu under siege in South Africa

South Africans buying products from Chinese online retailers Temu and Shein are set to pay far more for their orders in the coming weeks.

TFG CEO Anthony Thunström said South African retailers have been working with the South African Revenue Service (SARS) and Customs to create a level playing field.

Thunström said that when TFG and other South African retailers import clothing, they pay 45% of the import duty plus value-added tax (VAT).

However, Shein and Temu are accused of bypassing these taxes by abusing a loophole in how smaller packages are taxed.

Jean-Louis Nel, tax director at Van Huyssteens Commercial Attorneys, explained that packages under R500 are taxed at 20%.

Retailers claim Temu and Shein break up larger orders into smaller quantities and packages to ensure they are under R500.

Once they have benefitted from the lower 20% tax, they combine these orders again before shipping them to clients.

Nel explained that Temu and Shein used the ‘de minimis’ rule by splitting imports to fall below R500. “That means there is a flat rate of 20% and zero VAT,” he said.

“Retailers are aggrieved by this practice as any imports they do is at 45% plus 15% value-added tax,” Nel said.

This puts South African retailers under a great deal of pressure because consumers will prefer lower-priced items.

“From a competition perspective, it looks uncompetitive because it does not stimulate the local market,” he said.

“However, the lower import tariffs also force local retailers to become more competitive and drop their prices.”

To address this issue, from 1 July 2024, SARS and Customs will levy the same duties and taxes on clothing items under R500 as on bigger orders.

Nel explained that a R100 order from Temu and Shein would have previously cost South Africans around R120.

Because of the higher taxes, the same package will now cost R167 after the 45% import levy and VAT are added.

“The risk to Temu and Shein is that it will make its pricing less attractive, which could lead to lower sales volumes,” he said.

It may look like South Africa will benefit from more import taxes. However, Nel said this is not necessarily the case.

It will depend on the impact of the higher taxes on sales volumes. Should sales volumes decline significantly, it may lead to lower tax collections.

Another thing to consider is the impact on local entrepreneurs who use imports from Temu and Shein to make a living.

These small business owners buy products from cheap Chinese retailers and sell them in the South African market.

The new application of import taxes on clothes will impact these small businesses and harm their value proposition.

Therefore, it will benefit large retailers to the detriment of small businesses that rely on cheap imports to survive.

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.”