Retail

Temu and Shein price warning in South Africa

The South African Revenue Service (SARS) closed a tax loophole that allowed e-retailers like Shein and Temu to avoid paying import duties on clothing items under R500. This will likely increase prices for South African consumers who shop at these online retailers.

Since they arrived in the country, Chinese eCommerce giants Shein and Temu have taken South Africa by storm.

The retailers’ low prices and wide variety of products attracted local consumers, making it difficult for local retailers to compete.

Some local players have argued that part of the reason for Shein and Temu’s dominance is that they do not have to pay the same import duties as local players.

Therefore, local retailers recently approached SARS and Customs to create a level playing field by taxing Shein and Temu orders at higher rates.

When local retailers import clothing, they pay 45% of the import duty plus value-added tax (VAT).

However, Shein and Temu have been accused of bypassing these taxes by abusing a loophole in the taxation of smaller packages.

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.”

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

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

SARS Commissioner Edward Kieswetter

In an interview with News24, SARS Commissioner Edward Kieswetter said introducing these new tax rules was necessary to combat the “unfair advantage” online retailers have created. 

“It is not a new law. We are simply saying that the loss to the fiscus, because of the way we have administered it in the past, has reached a volume that is so high. We estimate about R3.5 billion in lost taxes,” he told the publication.

The commissioner explained that Sars’ administrative processes were established when online shopping and e-commerce weren’t common.

“It was a couple of people buying from Amazon.com and Alibaba,” he said.

Kieswetter said shopping habits have shifted since, and Sars needs to modernise its processes.

This “new” tax law has been met with mixed reception in South Africa. Local textile and fashion players have embraced the change, saying it has helped to level the playing field.

However, many consumers have voiced their displeasure with the new regulations, saying it will punish consumers, not retailers exploiting tax loopholes.

Following the announcement of these changes, an independent petition was started urging SARS to reconsider its decision. At the time of writing, this petition has over 20,000 signatures.

“South Africans cannot afford this. We buy from Shein and Temu because we cannot afford clothes from local businesses. The point of Shein and Temu is affordability,” the petition states.

“SARS can increase the tax so quickly, yet they don’t do anything regarding serious issues in South Africa. Shein and Temu don’t only benefit consumers but local couriers as well.”

“This is not fair to consumers; the government does not care about us citizens; they just want to eat up all of our money.”

South African Express Parcel Association’s (SAEPA) CEO, Garry Marshall, has also warned that SARS’ decision could cost thousands of jobs and leave consumers paying far more for imported items.

Marshall told The Money Show that this decision could have significant negative consequences.

“If this has a major impact on volumes coming into the country, then it will have a big impact on employment in our industry,” he warned.

He explained that they currently have about 100,000 packages a day coming in, of which around 40% are from Temu and Shein.

The average courier driver delivers about 50 packages a day, so there are around 2,000 couriers involved in delivering packages ordered from these online retailers.

“If this decision has a high-level solid impact on volumes coming in, there will be a loss of jobs. It will have a big impact,” he said. 

However, Marshall doubts that it will come to that. Instead, he believes South African consumers will be the hardest hit.

“From the courier perspective, other than volumes, the 45% tax makes no difference because we don’t gain anything out of that 45%,” he explained.

“We currently pay a flat 20% for shipments under R500. That’ll go up to 45% plus VAT. So roughly a 39% increase gets passed on to the consumer.”

“So the consumer will feel the pain, not the couriers. We will only feel the pain if the volumes decrease.”

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