Good news for Temu and Shein shoppers in South Africa

The South African Revenue Service (SARS) has delayed charging a 45% tariff on importing clothing products, which is good news for Temu and Shein shoppers.

SARS informed the South African International eCommerce Association (SAIEA) that further stakeholder engagement is needed before implementing the higher tariffs.

This development followed months of behind-the-scenes moves to remove Temu and Shein’s competitive advantage related to clothing imports.

Chinese eCommerce giants Shein and Temu have taken South Africa by storm through their low prices and affordable local deliveries.

Many local competitors 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.

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.

SARS Commissioner Edward Kieswetter also commented on the issue, saying they needed new tax rules to combat the “unfair advantage” online retailers have created.

The commissioner explained that SARS’ administrative processes were established when online shopping and eCommerce weren’t common.

With the rapid rise of eCommerce, Kieswetter said SARS needed to modernise its processes to ensure it kept pace with shifting shopping habits.

To address this issue, SARS and Customs were supposed to levy the same duties and taxes on clothing items under R500 as on bigger orders. However, this did not happen.

“SARS’s decision to apply a 45% tariff on imported clothing products has been put on hold until further notice,” says SAIEA.

It added that SARS’s further stakeholder engagements will ensure trade and system readiness in South Africa’s eCommerce sector.

The proposed tax changes on how clothing imports will be handled have been met with mixed reactions in South Africa.

SAIEA chairperson Dudley Filippa welcomed the decision, saying the organisation 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 eCommerce in South Africa.”

South African Express Parcel Association’s (SAEPA) CEO, Garry Marshall, has also warned that changing import taxes could cost thousands of jobs.

“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.

Marshall added that South African consumers will be the hardest hit. “The consumer will feel most of the pain, not the couriers.”

Local retailers and eCommerce companies have welcomed the proposed tax change, saying it is necessary to create an equal playing field.

Takealot said offshore online platforms with no physical presence in South Africa extract value without contributing, harming small businesses and local manufacturers.

It said, “This form of commerce extracts value from South Africa without contributing to local communities or skills development.”

“It ultimately harms small businesses and local manufacturers and threatens the ability of entrepreneurs and corporates to create job opportunities.”

TFG CEO Anthony Thunström recently 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).

If Temu and Shein only pay 20%, they have an unfair advantage that must be addressed.