Sars’ Shein and Temu crackdown: Association warns of smuggling and job losses

The South African International E-commerce Association (Saiea) has warned that the amount of smuggling of clothes in the country may increase amid clamp down by the South African Revenue Services (Sars) on taxes.

South Africa’s tax authority has recently announced its decision to remove a benefit that allowed people to buy clothes and other items from online stores like Shein and Temu without paying extra taxes.

This benefit, called “de minimis”, allowed items worth less than R500 to be imported without paying duty and Value-Added Tax (VAT). Now, these items will be charged 60% tax comprising of 45% import duty and 15% VAT.

Sars tax petition

Local retailers and the textile industry complained that Chinese e-commerce companies were avoiding taxes, giving them an unfair advantage.

However, the e-commerce industry argues that this change will hurt consumers, especially low-income families, and also affect jobs in the industry.

Sars’ decision to rid of the de minimis exemption has been met with a lot of backlash, especially from consumers.

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A petition run by consumers through change.org was started on 10 June this year to protest the tax increases.

At the time of this article’s publishing the petition acquired over 14,800 signatures.

Smuggling and a significant decrease in imports

According to the Saiea chairperson Dudley Filippa, the volume of imports is set to decrease “very significantly” as a direct result of the de minimis exemption.

Speaking to The Citizen, Filippa said there may be a potential smuggling or illegal activities increment as a result of this change.

“The change will result in all CTFL parcels to be cleared individually which will put a huge strain on customs which basically still runs a manual system. This could cause more risk of smuggling. E-commerce clearing, because of volumes, requires automation,” said Filippa.

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Furthermore, he added that some international logistics companies are on their way to full automation which translates to zero human intervention. Filippa said these companies are willing to share their expertise with Sars and other government departments to bring it up to speed and “make customs a world-class entity”.

Globally accepted practise

Moreover, Filippa emphasised that the de minimis exemption was a “perfectly legal and globally accepted practise” and not a tax loophole exploited by Chinese e-commerce companies like Shein and Temu.

“De minimis exemption is a World Customs Organisation institution in B2C e-commerce practised by 184 members, South Africa is one of them.

It places a ceiling on low-value goods with tax exemption to facilitate speedy customs clearing. USA 800USD, Australia 1,000AUSD, EU 135Euro – all tax exempt. South Africa R500 plus 20%. Goods are cleared through customs – so taxes are paid on all low-value imports,” he explained.

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Level the playing field, says Ackermans

However, in contrast, speaking to The Citizen earlier, Yda Van Gass chief executive of planning at Ackermans welcomed the removal of the exemption, saying it would level the playing field for local retailers.

She said Shein and Temu’s business model relies on expensive air freight, which local retailers cannot sustainably afford.

“Retailers have put pressure on government to regulate companies such as Shein and Temu a lot better and have asked that they pay the same duties local retailers must to ensure that the playing field can be levelled. We are very happy with the most recent changes deployed on taxing of the smaller parcels,” Van Gass added.

Sars decision to impact cash-strapped consumers

The Saiea has warned of mass retrenchment in the industry, with Filippa saying the scrapping of de minimis will not only affect the poor consumer but will also affect small and medium-sized enterprises (SMEs) and entry-level workers.

“It will result in mass retrenchment of especially young South Africans. Thousands of young South Africans have gained employment in the logistics industry as packers, despatch clerks, planning, clearing, etc. It will, sadly, add to the more than 40% unemployed youth,” he added.

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According to Fillipa, SMEs and entrepreneurs who rely on low-cost imports “will be paying 125% more duty plus 15% VAT which they would have to pass on to their customers.”

Furthermore, consumers who are already cash-strapped are the ones who are likely to suffer the whiplash of these taxes.

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“The change will, sadly, impact cash-strapped consumers and vulnerable households already afflicted by high food prices, fuel, transport etc, who could access clothing at wholesale instead of being compelled to pay high retail prices. Add to this an increase of up to 12% in electricity as of 1st July. Unfortunately, it is always the consumer who bears the brunt -especially the poor,” he said.