Local retail industry stakeholders have welcomed intervention by the department of trade, industry & competition that will see international e-commerce retailers taxed for small packages at the same rates as the fees levied on large orders.

The move is an attempt to “level the playing field” for local retailers following criticism that Chinese firms Shein and Temu are “abusing” tax loopholes to gain an unfair advantage in the local market by allegedly breaking up large shipments into “small packages”.

“We are fully supportive of free market dynamics, especially when they benefit entrepreneurs,” said Rael Levitt, CEO of Inospace, a logistics firm with a strong focus on last-mile fulfilment. “It is crucial that local businesses are given a fair chance to compete. These new regulations are a necessary step to ensure South African companies can operate on a level playing field.”

The interventions follow collaboration between various industry players and the South African Revenue Service (Sars).

“We have been working closely with Sars and customs to ensure we operate on a level playing field,” said Anthony Thunström, CEO of TFG, which owns brands such as Foschini and Bash. “Over the last few months, there has been significantly better enforcement from Sars and customs.”

South Africa has a vibrant e-commerce sector, with both homegrown and international players serving local consumers. This year has seen rivalry intensify with the entrance of large foreign players, with China’s Temu launching in January (although without much of a direct on-the-ground presence) and US giant Amazon launching an online marketplace in May.

When contrasted, however, the strategies of these giant retailers are markedly different. Amazon has a service-focused approach, similar to local incumbent, Naspers-owned Takealot Group. Temu and fast-fashion retailer Shein – both Chinese firms – compete aggressively on price.

Price advantage

Critics argue that by allegedly avoiding taxes, some international firms have been able to maintain a price advantage and gain market share unfairly.

“Everyone has to pay the full customs duties and the full VAT,” said outgoing trade minister Ebrahim Patel, according to a report in the Sunday Times at the weekend. “This ensures South Africa is not left poorer as a result of any gaps in our regulatory environment.”

This mirrors the tone of US authorities regarding Chinese online retailers. PDD, the company that owns Temu, became the most valuable Chinese e-commerce company in 2023, in part thanks to the strong demand it’s seen from US consumers.

Read: Shein IPO: £50-billion London listing on the cards

In February, Time reported that US lawmakers were drafting legislation to amend a trade rule called de minimis, a century-old regulation that exempts the taxation of imports valued at less than $800.

“It is a huge loophole that particularly enables these two companies (Shein and Temu) to send a gusher of product to the US and undercut American businesses that are literally being driven out of business by this competition,” congressman Earl Blumenauer told Time.

South African authorities impose a 45% duty and VAT on imported clothing worth more than R500. Parcels below this value previously attracted only minimal duties. From 1 July, however, such parcels will now attract the same 45% duty plus VAT as larger-value shipments.

However, the decision adds an administrative burden on Sars. One of the major advantages of de minimis rules is improved efficiency in customs operations, which now will become more onerous.

And with costs likely to increase for companies like Shein, consumers will feel the pinch since these costs will almost certainly be passed on to them. Longer lead times due to delays at customs processing points will also lead to longer delivery times.

Read: Temu sales soar after global expansion drive

TechCentral could not immediately secure comment from the trade department on the new rules. The publication has asked Shein and Temu for comment and will update this article should be feedback be received.

“This piece of legislation is crucial in protecting local businesses from unfair competition and supporting the development of a robust e-commerce sector in South Africa,” said Inospace’s Levitt. – © 2024 NewsCentral Media