South African Retailers Alarmed as Shein and Temu Thrive Amid Tax Loophole Accusations

The National Clothing Retail Federation (NCRF) has raised a red flag concerning the operations of global eCommerce giants Shein and Temu in South Africa, accusing them of evading taxes and custom duties. Such practices, they allege, give these online retailers an unfair pricing advantage, threatening local businesses and jobs while also compromising national revenue.

According to the NCRF's executive director, Michael Lawrence, the issue was brought to the attention of the South African Revenue Service (SARS). The influx of underpriced goods from these international platforms has put significant pressure on local retailers unable to match rock-bottom pricing.

Shein and Temu's business model relies on minor pricing with most products ranging from R10 to R300, disrupting the market with their cost-effectiveness. In conjunction with their competitive pricing, free shipping, and additional discount coupons further intensify their allure to South African consumers.

Both Shein and Temu utilize Buffalo Express for logistics, a company that aligns with the South African customs and banking systems, creating an efficient import process. This efficiency, however, is overshadowed by the controversy that Shein and Temu may not be paying their fair share of import duties and VAT, as reported by sources within the e-commerce industry.

In-depth research by the NCRF revealed that these companies might be bypassing mandatory fees that should typically be applied to imports. Avoiding these taxes not only undercuts local competitors—who must comply with these financial obligations—but also represents a significant loss of revenue for the government. With the prevailing 45% import tariff on clothing, designed to protect local manufacturers, the failure to enforce this duty can result in significant market distortions.

Temu has responded to these allegations, assuring their commitment to abide by local regulations and stating they work with established logistics partners to handle tax and custom processes. The company clarified that displayed prices in their South African shop exclude import duties and taxes, which are determined upon package arrival by local authorities.

Despite Temu's statement, the concerns conveyed by the NCRF reflect broader anxiety among South African retailers. The alleged discrepancies in revenue declarations raise questions about the level playing field and the potentially devastating impact on local industry and employment.

The NCRF has pinpointed the parties it believes to be responsible for incorrect duty reporting to SARS and has called upon the Department of Trade, Industry, and Competition to investigate and address these practices, which they deem detrimental to the South African economy.

This controversy underscores the delicate balance between embracing global e-commerce benefits and safeguarding national economic interests and local business viability. The South African retail industry awaits swift action from authorities to ensure fairness and integrity in the marketplace.