Shein and Temu Face Tax Crackdown in South Africa, Higher Duties Imposed

The South African Revenue Service (SARS) will impose higher import duties on low-value clothing orders from Shein and Temu, addressing local retailers' concerns about unfair competition. Starting July 1, 2024, all clothing shipments will face a 45% duty plus VAT.

South Africa Imposes Higher Taxes on Shein and Temu to Ensure Fair Competition in Textile Industry

According to MyBroadband, the potential modifications to duties on imported products are not intended to harm consumers but to ensure that local and international participants in South Africa's textile and apparel industry are treated equally. This is the opinion of Dr. Mark Goodger, the CEO and proprietor of Maritime Legal Solutions and a Chartered Tax Adviser from the South African Institute of Taxation.

After the announcement in early June that low-value and small-volume clothing orders from Temu and Shein will be subject to higher taxes starting next month, Goodger's comments were made. Anthony Thunström, CEO of the Foschini Group, stated that the South African Revenue Service (SARS) has agreed to impose an import duty of 45% plus VAT on all clothing shipments effective July 1, 2024.

“It’s a big move, and I think it will help local industry, including local production and jobs,” Thunström said. The change was initiated in response to allegations by local apparel retailers and textile industry stakeholders that Chinese companies were exploiting a tax loophole to maintain low import prices.

Shein and Temu Exploit Tax Loophole, Prompting South Africa to Enforce Stricter Import Duties

BusinessLive reported that Shein and Temu obtained clothing shipments valued at less than R500 through customs with a 20% import duty and 0% VAT due to the "de minimis rule." Clothing retailers expressed dissatisfaction that they were perpetually required to pay the 45% plus VAT rate for imported clothing, placing them at a competitive disadvantage compared to direct-from-China importers such as Temu and Shein.

Goodger clarified that a concession document that has been in effect for several years applies to cargo of low value and high volume. To facilitate trade and alleviate the burden on customs authorities, this document allows the courier industry to pay a flat charge of 20% once a month. “In respect of high-volume, low-value consolidated shipments, it appears apparent that Shein and Temu have utilized this provision,” he explained.

Consequently, he stated that local apparel and clothing retailers' complaints are rooted in the fact that they cannot take advantage of the 20% fixed rate. Local retailers are subject to an additional 15% VAT and a rate of approximately 45% when they import comparable products.

“Definitely, there is a concern that if one particular entity or another does receive such an advantage, then it is considered to be not a level playing field,” Goodger explained. Consequently, SARS has been requested to eliminate the tolerance regarding textiles, apparel, and garments, thereby establishing a level playing field.

“It is not a move directed at depriving any particular community of receiving that low-value product,” he specified. “It is rather a corrective move towards a level playing field, and in terms of the customs that the values declared must be correct.”

With a potent one-two punch of aggressive marketing campaigns and unbeatable prices, Chinese eCommerce giants Shein and Temu are rapidly capturing the South African online market and taking on local players. These corporations have effectively captured the South African market by examining the playbook they employed in the United States.

Temu Dominates South African Market with Aggressive Advertising, Surpassing Local Competitors in App Downloads

Temu, owned by the extensive PDD Holdings, which has a market capitalization of $151 billion, entered the US market in September 2022 and immediately began inundating digital platforms with advertisements. As a result of this spending binge, in 2023, they became the most prominent advertiser on Meta and a top-tier advertiser on Google. They dominated ad space on major websites and even secured a Super Bowl ad slot, extending their reach beyond search engines.

Nevertheless, the cost of this aggressive marketing campaign was substantial. In the third quarter of 2023, PDD Holdings allocated an extraordinary $3 billion to sales and marketing. According to estimates, Temu experienced an average loss of $7 per order due to marketing expenses. However, this approach proved successful, enabling Temu to surpass even the most popular social media platforms in the United States and become the most downloaded app.

Currently, South Africa is confronted with the same assault. Online spaces are being inundated with Temu advertisements, which outspend any local competitor. This dominance is evident in the number of app downloads, with Similarweb ranking Temu's mobile app as the most popular in the country, surpassing established platforms. Despite the advantages of their local connections, South African eCommerce players need to catch up on their restricted marketing expenditures. They cannot contend with Shein and Temu's financial strength, as their budgets are typically in the single digits of their revenue.

The future of South African eCommerce is skewed toward Chinese players, as giants such as Takealot are contemplating the sale of Superbalist due to competition concerns. The dominance of local brands is being challenged by the formidable forces resulting from their aggressive marketing strategies and low prices.

Photo: Microsoft Bing