Low-cost Chinese fashion and general merchandise online retailers Shein and Temu have taken advantage of loopholes to undercut South African e-commerce companies unfairly, Naspers-owned Takealot Group said on Monday.

In notes accompanying Naspers’s annual results for the year ended 31 March 2024, Takealot accused Shein and Temu – and others like them – of threatening South Africa’s “reindustrialisation and localisation efforts”.

“These platforms contribute to a market imbalance by flooding the market with inexpensive imports. This influx is particularly noticeable in the local apparel sector due to Shein, and in the wider general merchandise market, affected by both Shein and Temu. Such trends pose significant challenges to the development and sustainability of domestic industries,” it said.

Takealot accused the companies of “exploiting outdated regulations and loopholes by using shipping methods that allow them to offer products at exceptionally low prices while avoiding duties, taxes and other government fees imposed on conventional retailers”.

“Collectively, this hinders government initiatives focused on revenue generation and collection, and undermines South Africa’s sense of sovereignty,” it added. “It is imperative that policymakers craft regulations to level the playing field, ensuring all participants adhere to the same standards and practices and contribute fairly to the national economy.”

It warned that the consequences of not changing the regulatory framework are “significant” and, if not addressed, the “disparities will continue to widen, placing local businesses at a further disadvantage”.

‘Economic drain’

“This will not only inhibit their growth potential but also perpetuate a significant economic drain. Such a scenario threatens the vitality of the local economy and undermines sustainable development efforts,” Takealot said.

“In addition, without reform, potential new international investment could be deterred by the risk of an unstable and unbalanced market. Importantly, beyond the regulatory environment, these businesses selling into our country do not invest in physical infrastructure locally, nor do they employ locally – a net loss to South Africa. We believe it is crucial to quantify the significant current impact of offshore e-commerce on the South African economy, particularly in the manufacturing sector,” it said.

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“This form of commerce extracts value from South African consumers without contributing to local communities, ultimately harming small businesses, local manufacturers and the limited job opportunities available.”

South Africans have flocked to Shein and Temu this year for their exceptionally low prices on fashion and general merchandising products.

TechCentral reported earlier in June that the department of trade, industry & competition has asked the South African Revenue Service to tax international e-commerce retailers for small packages at the same rate as large orders.

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

“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.”

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 earlier in June. “This ensures South Africa is not left poorer as a result of any gaps in our regulatory environment.”

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 attract the same 45% duty plus VAT as larger-value shipments.

TechCentral has previously asked Shein and Temu for comment on the changes to the tax rules and the allegations that they have been abusing loopholes. Neither company responded. – Reporting with Nkosinathi Ndlovu, © 2024 NewsCentral Media