South Africans may pay more for Temu, Shein as revenue service plans to scrap import tax break

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The news:

• SARS plans to revoke customs concessions, including the 20% flat duty rate for imports valued under R500.
• The concessions were initially introduced in 2007 to streamline the clearance of low-value shipments amid growing e-commerce.
• Temu and Shein have leveraged these concessions to import goods at reduced tax rates, enabling them to offer lower prices.
• If implemented, the withdrawal could lead to increased prices for consumers purchasing from these international platforms.

The South African Revenue Service (SARS) is considering withdrawing customs concessions that currently allow simplified clearance processes and reduced taxes for low-value imports.

This move could significantly impact Chinese e-commerce giants Temu and Shein, which have been utilising these concessions to offer competitively priced products in South Africa.

In 2007, SARS implemented a concession allowing imports valued under R500 to be subjected to a flat 20% duty rate without the addition of the standard 15% Value Added Tax (VAT).

This measure was designed to streamline the customs clearance process for low-value shipments, accommodating the burgeoning volume of e-commerce transactions.

Chinese online retailers, notably Temu and Shein, have leveraged these concessions to offer competitively priced products to South African consumers.

By importing goods in consignments valued below the R500 threshold, these companies benefited from the reduced duty rate and VAT exemption, enabling them to maintain lower prices.

An e-commerce insider explained that these companies exploit the 17-year-old import concession, which allows for a flat 20% duty with no VAT on small package imports below R500. In contrast, local companies face a 45% duty plus VAT on clothing imports.

The influx of low-cost imports has raised concerns among South African retailers about unfair competition.

Local businesses argue that the tax advantages enjoyed by these international platforms create an uneven playing field, making it difficult for them to compete. This situation has led to calls for policy interventions to ensure fair competition in the e-commerce sector.

In response to these concerns, SARS Commissioner Edward Kieswetter has issued a notice of intention to withdraw all customs concessions, including the reduced taxes and simplified clearance processes currently in place.

If this proposal is implemented, products from retailers like Shein and Temu will no longer benefit from the simplified process and the 20% flat duty rate.

The potential withdrawal of these concessions could have several implications:

• Increased Prices for Consumers: Without the tax advantages, Temu and Shein may need to adjust their pricing structures, potentially leading to higher prices for South African consumers who purchase from these platforms.
• Levelling the Playing Field: Local retailers may find it easier to compete on price, fostering a more balanced competitive environment in the South African e-commerce market.
• Impact on Import Volumes: The removal of concessions could lead to a decrease in the volume of low-value imports, as higher duties may deter consumers from purchasing inexpensive items from international retailers.

It’s important to note that these changes are currently under consideration, and the final decision will depend on further deliberations and consultations with stakeholders in the e-commerce and retail sectors.

While consumers may face higher prices, the policy shift aims to promote fair competition between international e-commerce platforms and local businesses. By standardising import duties and tax obligations, SARS seeks to create an equitable market environment that supports the growth and sustainability of domestic industries.