SA's taxman plans clampdown on Shein and Temu

South Africa's Revenue Service (SARS) is considering stringent tax measures targeting low-cost e-commerce giants like Shein and Temu, a move to curb the unfair advantages these platforms have since exploited. 

From September 1, 2024, VAT will be imposed on goods currently subject to a flat 20% duty, with more changes slated for November. These measures are designed to close loopholes allowing these e-commerce platforms to undercut local retailers by avoiding full import duties and VAT.

Importers have benefited from a SARS concession allowing goods valued under R500 to be taxed at a flat 20%, bypassing the full customs duties and VAT typically levied on such items. In June, the regulator proposed a 45% import duty plus VAT to reduce pricing advantage, but delayed.

This loophole has been advantageous for Shein and Temu. They have allegedly split larger orders into smaller packages to fall within the threshold evasive of higher taxes. The result? A surge in low-cost imports has disrupted the retail market, eliciting cries of unfair competition from local businesses.

The crackdown is not just about collecting lost revenue—it’s about protecting the integrity of the retail sector. Edward Kieswetter, the SARS commissioner, highlighted that the country's tax infrastructure has not kept pace with the explosion of online shopping. 

"When these rules were first developed, it was a couple of people buying from Amazon.com and Alibaba," Kieswetter noted, showing the need for modernization in the face of shifting consumer habits. He also revealed that the exploitation of these loopholes has cost South Africa over R3 billion (> $164 million).

The upcoming changes are aligned with the World Customs Organisation (WCO) framework, which standardizes the processing of e-commerce goods. From November, SARS will reconfigure the 20% flat rate according to three of the four WCO categories to tighten the noose around low-cost imports. 

These categories include low-value consignments that either fall below a de minimis threshold and are exempt from duties or are dutiable but subject to simplified clearance processes. High-value consignments, which fall outside these categories, will continue to be subjected to normal clearance procedures - full duties and taxes.

The crackdown on Shein and Temu is part of a broader global trend where countries are reassessing the impact of low-cost e-commerce imports on their local economies. 

The European Union is reportedly considering similar measures, and in the United States, the Customs and Border Protection is zeroing in on customs brokers handling billions of dollars in low-value online orders. These actions reflect a growing recognition that the rise of e-commerce has created new challenges for tax authorities worldwide.

For South Africa, the stakes are particularly high. The local retail sector, already under pressure from economic challenges, cannot afford to be further undermined by unfair competition from international players. 

SARS’s new measures are not just about revenue collection—they are about leveling the playing field to ensure that South African businesses can compete fairly. Leveraging data, artificial intelligence, and machine learning, it aims to modernize its tax administration processes, reducing the risks to the economy posed by these tax evasion tactics.

As the November deadline approaches, eyes will be on how these changes impact both the local retail market and the operations of international e-commerce platforms. For Shein and Temu, the era of exploiting South Africa’s tax loopholes may be coming to a swift, costly end.