Shein and Temu's Tax Evasion Threatens South African Retail

The National Clothing Retail Federation (NCRF) of South Africa has raised significant concerns over the operations of international eCommerce giants Shein and Temu within the country. An in-depth investigation has unveiled strategies employed by these companies, which reportedly include exploiting tax and custom loopholes, thus potentially damaging the local retail sector and affecting job sustainability.

Michael Lawrence, the executive director of the NCRF, provided feedback regarding these issues, noting the adverse effects they could have on the revenue collection and the local job market. He emphasized the concerns during an interview on a popular talk radio station, 702, insisting that the South African Revenue Service (SARS) was already notified about these pressing matters.

While Temu only made its entrance into the South African market on 17th January 2024, it has quickly positioned itself to fiercely compete with established local players such as Superbalist and Bash. Following the footsteps of its Chinese compatriot, Shein, Temu offers an extensive range of products at considerably low prices — some even ranging from R10 to R300, not discounting more expensive items such as electronics that surpass the R1,000 margin.

This competitive pricing strategy is further bolstered by attractive incentives such as coupon discounts and free shipping services, making it nearly impossible for South African retailers to match price points. This disparity has led to NCRF's research which allegedly shows that these companies have been skirting import duties and avoiding the correct application of VAT on their products. The federation claims that this gives Shein and Temu an unfair advantage over South African producers, who are obligated to abide by the tax regulations, including a 45% import tariff on clothing meant to protect the local industry.

A major eCommerce executive, preferring to remain unnamed, supported the NCRF's claims in a statement to Daily Investor, stating that Shein and Temu have found ways to dodge import duties. This claim suggests that local couriers and service providers working with these eCommerce entities could be underreporting or misdeclaring duties and taxes to SARS.

Lawrence provided further insight into the matter, detailing that no invoices have been presented thus far that reflect the appropriate revenue collection from authorities, particularly concerning VAT and tariffs. This discrepancy has prompted the NCRF to identify the culprits and to request an investigation by the Department of Trade, Industry, and Competition.

The challenge faced by South African retailers is not merely one of competition but of survival. Should these allegations prove accurate and remain unaddressed, local manufacturers and retailers stand to lose significantly. Lawrence warns of a "race to the bottom" regarding pricing, a predicament where no party truly wins, with the ultimate price being the loss of South African jobs and the destabilization of local businesses.

In response to these concerns, the NCRF and other industry stakeholders are campaigning for SARS and the government to closely inspect and plug these tax loopholes. It is a call for action to protect the integrity of South Africa's economy and ensure a level playing field for all retail competitors.