South African taxman coming for Temu and Shein

South African Revenue Service (Sars) commissioner Edward Kieswetter says import loopholes exploited by online platforms like Shein and Temu have resulted in fiscal losses of R3.5 billion.

Speaking to News24, Kieswetter said Sars will continue to clamp down on these unfair advantages as it plays catch-up on updating tax rules and administration processes.

The commissioner explained that Sars’ administrative processes were established when online shopping and e-commerce weren’t common.

“It was a couple of people buying from Amazon.com and Alibaba,” he said.

Kieswetter said shopping habits have shifted since, and Sars needs to modernise its processes.

The commissioner’s comments follow an outcry from retailers and labour groups who say Temu and Shein have exploited import loopholes to gain an advantage over local companies.

Local retailers had accused the Chinese retailers of exploiting a de minimis rule, which enabled them to import clothing parcels with a value of less than R500 with just a 20% import duty and no VAT.

This puts them at a disadvantage, considering local retailers must pay the 45% import duty plus VAT on all clothing imports.

However, their allegation of exploiting the de minimis rule isn’t accurate.

An anonymous industry expert told MyBroadband that Temu and Shein’s logistics partner, Buffalo International Logistics, benefited from a concession list published by Sars in 2007, enabling it to pay a flat monthly rate of 20%.

Maritime Legal Solutions CEO and founder Mark Goodger previously pointed to this concession as the loophole Chinese importers were using.

Goodger explained the provision for the courier industry to pay a flat 20% fee was to streamline trade and lessen the burden on customs.

He said the call to remove the loophole wasn’t to hurt consumers, but rather to level the playing field in South Africa’s clothing retail sector.

In other words, either everyone must benefit from a 20% flat duty and no VAT, or everyone must pay the stipulated customs fees on clothing import plus VAT.

Goodger said local retailers feel they’ve been hard-pressed as they can’t benefit from the concession and instead pay roughly 45% plus 15% VAT to import similar products.

“It is not a move directed at depriving any particular community of receiving that low-value product,” said Goodger.

“It is rather a corrective move towards a level playing field, and in terms of the customs that the values declared must be correct.”

Sars implemented a 45% plus VAT import duty on all clothing from 1 July 2024 to close the loophole.

The Foschini Group CEO Anthony Thunström welcomed the new duty, saying it would provide a boost for local retailers.

“It’s a big move, and I think it will help local industry, including local production and jobs,” said Thunström.

South African consumers voiced their displeasure over the 45% duty plus VAT for clothing imports following the announcement.

Some launched a petition titled “Petition for SARS not to increase tax on Temu and Shein orders” to block the tax hike.

However, despite the petition having garnered over 21,000 signatures, it was unsuccessful.

Shein has been available to South African consumers for a while, and Temu launched in the country in January 2024.

Both have seen immense success through their South African platforms.

This has also benefited China-Africa import specialist Buffalo International Logistics, which has seen explosive growth in recent years.

Temu and Shein grew so popular that Buffalo Logistics was forced to inform customers in March 2024 that their orders would be late.

Buffalo has increased its staff complement from around 33 people in 2022 to 127 today.

Data from LinkedIn shows the company grew its operations staff by 78% in the past year and doubled the number of staff in support roles.

Although Buffalo was founded in 2017, its stratospheric rise only started recently — over two years after Shein entered the South African market in 2020.

While Shein uses two logistics providers in South Africa, Buffalo International Logistics is a cornerstone of its success.

Shein’s popularity exploded in 2023 — the same year Buffalo Logistics received its Level 1 Authorised Economic Operator (AEO) accreditation from the South African Revenue Service.

The certification was issued for five years and, according to Sars, grants it access to expedited processes, fewer and faster inspections, exemptions from certain customs supervision, and reduced security deposits.

It has integrated with South African customs, local banking systems, and several express companies. It also owns a fleet of 300 vehicles.

The company grew so rapidly that it bought Lufthansa’s old South African headquarters in October 2022 and turned it into a 25,000-square-meter sorting centre.