From July 1, 2024, South Africa’s Revenue Service (SARS) and Customs will effectuate new rules on small online orders entering the country. Revealed in early June, the regulation will see clothing items valued under R500 ($27.48) attract the same amount of import duties as larger ones.
As of now, clothing orders valued more than R500 carry a 45% import duty, plus a 15% value-added tax. Parcels below this sum, on the other hand, are charged around 20% import duty but are exempt from value-added tax. New rules mean this distinction will be eliminated.
The change aims to streamline the eCommerce market’s tax structure and possibly increase import revenues. But from the looks of things, it is likely to leave huge implications for small businesses and consumers alike. Particularly, consumers buying inexpensive clothing from international vendors face higher costs.
SARS’ plan is not going down well with South African online shoppers. The waiver, also called a de minimis exemption, was a lifeline for the cash-strapped. It allowed them to buy clothing and other “small items” at factory prices via eCommerce platforms like Shein and Temu.
Now, thousands of South Africans have tended their signatures on an online petition opened on June 10 protesting the imminent enforcement. They have taken the entreaty to Change.org where more than 17,000 people have tendered complaints regarding the adverse effects it can bring for individuals, local couriers, cargo businesses, and the SA eCommerce economy.
The petitioners do acknowledge the taxation’s role in funding essential services, yet argue that the abrupt increase is unfair and burdensome in an economy where households already grapple with steep local goods prices and high living costs. It paints a picture of a government out of touch with citizens’ economic realities.
“As citizens and consumers, we recognize the importance of taxation in funding government services and programs,” the petition notes. “However, South Africans cannot afford this. We buy from Shein and Temu because we cannot afford clothes from local businesses. The point of Shein and Temu is affordability”.
“SARS can increase the tax so quickly, yet they don’t do anything regarding serious issues in South Africa. Shein and Temu don’t only benefit consumers but local couriers as well. This is not fair on consumers; the government does not care about us citizens; they just want to eat up all of our money.”
The increased tax aims to level the playing field to the advantage of local retailers, given concerns raised by local media reports regarding Chinese high fashion eCommerce brands capitalizing on the tax loopholes to ship in smaller quantities to benefit from lower import duties.
Speaking to Fibre2Fashion on June 20, 2024, Michael J Lawrence, executive director of the National Clothing Retail Federation (NCRF) of South Africa said the new regulation is being imposed to address enduring difficulty with calculating small parcel duties.
“What we saw was there was a gap in the market that was being taken advantage of, but it became a market in the gap, a big market all by itself in the gap. So, a few thousand became many millions of parcels that had implications for revenue and trade,” Lawrence told the publication.
Back in April, local retailers, under the auspices of E-commerce Forum South Africa (EFSA), aired their frustrations about Shein and Temu’s anti-competitive prices and exploitation of import tax loopholes.
The major concerns from members were the impossibly low prices set by foreign businesses, which local players cannot match, and their use of large advertising budgets that overshadow product promotions.
In addition, they believed that these foreign competitors don’t play by South African laws, giving them unfair competitive advantages and lowering their operational costs. Many questioned the government’s efforts to protect local businesses and the manufacturing sector from these drawbacks.
Temu and Shein have carved niches in the global e-commerce market, leveraging different business models to achieve growth. Temu operates a multi-segment marketplace, offering a diverse range of products from third-party sellers, including fashion, household goods, home appliances, toys, and electronics.
Shein, meanwhile, employs a direct-to-consumer model, introducing products in small batches and restocking based on customer demand. This approach allows it to respond swiftly to market trends and minimize overproduction. This has paid off, with the company growing into a global e-commerce powerhouse.
In 2023, Shein’s sales were estimated to exceed $30 billion, and the company now operates in over 150 countries, having relocated its headquarters from China to Singapore. This relocation reflects Shein’s ambition to enhance its global footprint and operational efficiency. As of December 2023, it was ten times bigger than all South African clothing retailers put together.
On the other hand, Temu has experienced remarkable success, particularly in mobile app adoption. By the first quarter of 2024, its app had over 350 million users, and in March alone, it was downloaded more than 41 million times, passing Amazon in popularity.
2023, it had $15 billion in gross merchandise value (GMV), with forecasts this figure will exceed $30 billion in 2024. The brand launched in SA in early 2024, and in the same year, quickly became the country’s most popular free smartphone app among iOS and Android users.
