Shein and Temu battle turns ugly

Shein is suing its competitor Temu, but the latter has highlighted the hypocrisy of the lawsuit.

Shein’s accusations at Temu revolve around copyright infringement, the theft of trade secrets and internal pricing information, and impersonation of it on Twitter/X to misdirect users. Shein filed an official complaint at the Washington D.C. federal court.

“The audacity is unbelievable. Shein, buried under its mountain of IP lawsuits, has the nerve to fabricate accusations against others for the misconduct they’re repeatedly sued for,” a Temu spokesperson told MyBroadband.

Major fashion retailers, including H&M, Victoria’s Secret, Levi Strauss, and Uniqlo, have accused Shein of copyright infringement.

The two retailers have taken legal action against each other in the past. Temu previously accused Shein of using threats to stop suppliers from doing business with it, while Shein said that Temu used influences to make false statements in its advertisements. Both of these lawsuits were eventually dropped.

Local changes

In addition to several reports of human rights abuses at Shein and Temu, the online retailers have also been accused of breaking South Africa’s tax laws.

It is alleged that Shein and Temu 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 stated that Temu and Shein break up larger orders into smaller quantities to ensure they are under R500.

After benefiting from the lower 20% tax, they add these orders again before shipping them to clients.

South African retailers, on the other hand, have to pay 45% plus VAT for imported clothes.

National Clothing Retail Federation’s (NCRF) Michael Lawrence said that research shows 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 added that Shein and Temu’s local couriers and service providers are also not correctly reporting their duties and taxes to SARS.

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

Shein and Temu most denied wrongdoing, arguing that their local distributors are fully compliant and AEO (Authorised Economic Operator)—SARS accredited.

SARS has admitted that its current administrative practices were designed when e-commerce volumes were low. Still, the e-commerce boom means it must review its tax rules and processes to collect duties and taxes on e-commerce goods effectively.

However, SARS has postponed imposing a 45% import tariff on clothing products.

SARS’s decision to apply a 45% tariff on imported clothing products was suggested after retailers complained about the tax loopholes used by Temu and Shein.

The tax hike was supposed to take effect on 1 July 2024, but SARS said further engagement with stakeholders regarding the change is needed.

The South African International eCommerce Association (SAIEA) said the SARS needs to ensure trade system readiness across the sector before implementing the tax increase.

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