Low-value and small-volume orders of clothing from Temu and Shein will face higher taxes starting next month, Business Times reports.
The Foschini Group (TFG) CEO Anthony Thunström informed the publication that the South African Revenue Service (Sars) has decided to impose an import duty of 45% plus VAT on all clothing parcels from 1 July 2024.
“It’s a big move, and I think it will help local industry, including local production and jobs,” said Thunström.
This change follows accusations from local clothing retailers and textile industry stakeholders that Chinese companies have been exploiting a tax loophole to keep their import prices low.
Previously, the de minimis rule allowed Shein and Temu to import clothing parcels under R500 with only a 20% import duty and no VAT.
Local clothing retailers argued that they always had to pay the 45% plus VAT rate for imported clothes, placing them at a disadvantage compared to direct-from-China importers like Temu and Shein.
To illustrate the impact of the change, consider an R100 clothing order from Shein or Temu. Previously, this order would incur an additional R20 in tax and no VAT.
With the new regulations, the same item will require a R45 import duty and R21.75 in VAT. Consequently, the total price of the order will rise to R166.75 from R120, marking a 39% increase.
The table below shows how the new 45% plus VAT tax for clothing orders below R500 will affect the effective prices of Shein and Temu orders.
Trade and Industry Minister Ebrahim Patel recently addressed textile industry workers, stating that the government aims to tackle online retail platforms that use tariff loopholes to undermine locally produced goods.
Patel identified Temu and Shein’s increasing influence as a significant import-related challenge for the local textile industry.
The trade department began investigating whether these companies were circumventing any tax laws last year.
National Clothing Retail Federation executive director Michael Lawrence has also raised concerns with Sars about suspicious practices by Temu and Shein.
Lawrence claimed that the companies or their local agent, Buffalo Logistics, were exploiting tax and customs loopholes to import their products cheaply into South Africa.
Temu and Shein denied any tax evasion, emphasizing that their low prices result from their business models, which allow them to source products directly from factories or suppliers in China.
While much of the local industry has struggled to compete with this model, one South African e-commerce player, Zando, has adopted a similar approach.
Zando has partnered with Buffalo Logistics to handle international shipping and customs clearance in South Africa for its newly launched Zando Global clothing importing service.
Other major online retailers, such as TFG’s Bash, argue that the quality of their products and the popular brands they carry give them an advantage over Shein and Temu.
It is important to note that this change only affects clothing imports.
Currently, there have been no adjustments in import duties for other goods like small electronics, which remain affordable and popular on Temu.
