Good news for Shein and Temu shoppers in South Africa

The South African Revenue Service (SARS) has decided to hold off on applying a 45% import tariff on clothing products – for now.

The South African International eCommerce Association (SAIEA) said the taxman has sent correspondence to the Freight Forwarding industry in South Africa, stating that further engagement with stakeholders regarding the change is needed.

SARS needs to ensure trade system readiness across the sector before implementing the hike, SAIEA said.

The take hike was supposed to kick in on 1 July 2024, but SARS confirmed that it was still engaging with the industry.

“SARS is in the process of consulting with industry on the implementation of the correct duties on imported clothing. Once this consultation is concluded, SARS will officially communicate the date of enforcement,” it said.

SARS’s decision to apply a 45% tariff on imported clothing products was floated after retailers and the textile industry accused major Chinese online retailers, Shein and Temu, of exploiting a tax loophole.

It is alleged that the retailers have been abusing the de minimis rule to get clothing parcels of under R500 through customs with a 20% import duty and 0% VAT.

Local 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.

South African clothing retailers, meanwhile, must pay the 45% plus value-added tax (VAT) for imported clothes.

National Clothing Retail Federation (NCRF), Michael Lawrence said the group’s research points to widespread abuse by Temu and Shein.

“These companies are not paying duties on their imports and are avoiding paying VAT where it should be applied,” he said.

He explained that these e-commerce giants’ local couriers and service providers are also not reporting their duties and taxes correctly to SARS.

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

SARS Commissioner Edward Kieswetter said that “unfair advantages” created by international online retailers and e-commerce platforms were leading to financial losses and over R3.5 billion in uncollected taxes.

The Chinese companies have denied any wrongdoing, stating that their local distributers are fully compliant and AEO (Authorised Economic Operator) – SARS accredited.

According to SARS, its current administrative practices were designed at a time when eCommerce volumes were low.

However, the recent boom of e-commerce has necessitated a review of SARS tax rules and processes to effectively collect duties and taxes on e-commerce goods.

“We welcome SARS’s decision to extend the timelines for this change, and we look forward to further engagement to find a pragmatic way forward for all parties involved,” SAEIA said.

“SAEIA fully supports SARS’ mandate to collect legally prescribed tariffs due to the state however, it is equally important that internal systems and software tools are sufficiently geared for the new process.”

The announcement to discontinue the small parcel exemption was met with strong resistance from consumers who took to social media to vent their frustration culminating in a petition that garnered
nearly 20,000 signatures.

SAEIE said that Shein and Temu provide a lifeline for low-income households, university students and pensioners, allowing them to purchase clothing and other items at affordable prices.

“E-commerce significantly contributes to the country’s GDP by creating new jobs, empowering independent couriers, and stimulating new markets for SME’s,” the group said.

Read: Shein opening physical store in South Africa – with a big catch