SA will join a growing number of countries imposing protectionist measures against online retail giants Shein and Temu.
These online retailers have been able to import goods at cheap rates, which keeps prices low but at the same time puts local retailers on the back foot. Their growth has resulted in increased scrutiny and regulatory pressures from authorities around the world, including the EU and US.
Recently, outgoing trade, industry & competition minister Ebrahim Patel said there was an urgent need to balance the playing field in the e-commerce sector to ensure platforms such as Temu and Shein paid equitable import tariffs and VAT to balance the clothing retail sector’s performance.
As such, articles of clothing and apparel purchased from e-commerce retailers outside SA, packaged in small quantities and valued at R2,500 and below, will from July 1 be taxed the same as large quantities.
Unfair advantage
At the heart of the matter are local retailers, which have been lobbying government, looking to reduce the low-cost advantages that Chinese e-commerce players have. The complaint from the local apparel and clothing retailers is based on the fact that they do not have the benefit of the 20% flat rate levied on small orders and when they import, they pay a higher 45% rate and 15% VAT on top of that.
This is according to Mark Goodger, CEO and founder of Maritime Legal Solutions.
“The objective now by associations is to request Sars to remove that tolerance as related to textile, apparel, clothing and the like, and therefore to create that level playing field,” said Goodger, who is also a tax adviser at the SA Institute of Taxation.
“It is not a move directed at depriving any particular community from receiving low-value product. It is rather a corrective move towards a level playing field. And in terms of customs, the values declared must be correct, the duties must be correct, so that everybody is on that level playing field.”
The move does add a layer of administrative burden on the SA Revenue Service (Sars). It is expected that shipments will now take longer to clear, therefore pushing up waiting times for customers.
E-commerce growth
According to a study by World Wide Worx, Mastercard, Peach Payments and Ask Afrika, SA online retail passed 6% of total retail in 2023, translating to R71bn.
Shein is consistently among the top smartphone apps downloaded in SA. The company, which is preparing for a US listing, is valued at just under $50bn.
There are an estimated 250,000 Shein shoppers in SA, according to data from the Marketing All Product Survey (MAPS), figures which have been referenced by Mr Price.
In recent months Temu, which is operated by Chinese e-commerce company PDD Holdings, has been expanding aggressively in SA.
Part of the blame for the situation has been laid at the feet of local courier companies, which are said to have advised the foreign firms about how to exploit the tax loophole.
“They were the ones that were responsible for doing the clearing from a customs perspective and they obviously understood the loophole and they were the ones that clearly advised Shein and Temu [on] how to take advantage of it. So they were involved,” Michael Kransdorff, founder of the Institute for International Tax and Finance, told Business Day TV.
SA couriers have seen an explosion in business in SA. Pingo, the delivery partner for Checkers Sixty60, and Karooooo Logistics, which delivers online orders for Pick n Pay, have benefited from online grocery shopping. Amazon’s entry to SA has given new business to The Courier Guy and DPD Laser.
Couriers that deliver on behalf of Shein and Temu locally include Buffalo International Logistics, which specialises in China-Africa online trade, and Dubai based iMile Delivery.
In tax, avoidance is not the same as tax evasion, Kransdorff said. “If you’re allowed to take legitimate means to minimise your tax ... then obviously the revenue authorities are entitled to come and change the law to shut those loopholes. We see loopholes all the time that Sars becomes aware of and then closes those gaps. This is one of those examples.”
Consumers under pressure
Undoubtedly, one of the factors that has helped increase demand for Chinese goods is local consumers looking for low prices and good deals.
But Michael Lawrence, executive director of the National Clothing Retail Federation, said: “People who have access to internet platforms and the ability to buy off digital platforms using credit cards and the like are not the most vulnerable of consumers. We’re talking about fundamentally a middle-class consumer here. We have in our retail world far more vulnerable consumers that we are actually interested in servicing.
“What is true of course is that the household purse for all segments of our population has been under substantive stress over the last decade and we know this is not a happy space for some people to be faced with, but you’ve got to look at the big picture.”
Correction: June 25 2024
A previous version of this article said packages in small quantities, and valued at R500 and below, will from July 1 be taxed the same as large quantities. This should be R2,500.
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