hein and Temu exploit tax and customs loopholes to cheaply import their products into South Africa, undercutting local retailers, putting thousands of local jobs on the line, and limiting revenue collection.

This is feedback from the executive director of the National Clothing Retail Federation (NCRF), Michael Lawrence, who told 702 that the federation had flagged these issues with the South African Revenue Service (SARS).

On 17 January 2024, Temu launched in South Africa. It is taking on established players like Superbalist, Bash, and its compatriot, Shein.

Temu’s biggest advantage is price. It sells products at prices that South African retailers cannot match. It includes its popular coupon discount and free shipping services.

Most of the product prices range from R10 to R300, with some more expensive products, such as inverters and batteries, crossing the R1,000 mark.

Temu used Buffalo Express, the same courier used by Shein. Buffalo integrates seamlessly with the South African customs system, the local banking system, and several express companies.

The success of Shein and Temu may be seen as a logical consequence of the globalisation of eCommerce services.

However, South African retailers have sounded the alarm that there may be more to the low prices than meets the eye.

A prominent eCommerce executive, who asked to remain anonymous, told Daily Investor that Shein and Temu are dodging import duties.

South African retailers have urged the government to plug tax loopholes used by Temu. Similar concerns have been raised about Shein.

Photo by: MD_Photography / Shutterstock.com

South African retailers have sounded the alarm that there may be more to the low prices than meets the eye.

Lawrence said research from the NCRF showed that these companies are not paying duties on their imports and are avoiding paying VAT where it should be applied.

“Our concern with offshore online services is that they are not paying the correct duties and VAT. So, our national revenue is implicated, and our local producers are disadvantaged,” he said.

He explained that local couriers and service providers to these eCommerce giants are not reporting their duties and taxes correctly to SARS.

“There have not been any invoices that show the correct revenue collection from authorities with regard to VAT and tariffs at this point. Either it is being incorrectly declared or miscategorised on the invoice.”

Lawrence said his organisation had identified the culprits and identified them to SARS. They have also requested the Department of Trade, Industry, and Competition to investigate the matter.

An import tariff of 45% on clothing, for example, is levied to protect local producers from cheap imports that would undercut them and threaten their survival in the long run.

By avoiding this tariff and the VAT applied, these eCommerce giants can offer their products at significantly lower prices than local competitors.

This will create a race to the bottom with regard to price, Lawrence warned, where no one wins. In particular, local manufacturers and retailers will lose out, and jobs will be lost if this is not addressed.

Temu dismissed the allegations in a recent statement, saying it is committed to complying with local laws and regulations in the markets where it operates.

Temu says it does not include import duties and taxes on the prices it displays in its South African shop. Applicable taxes are imposed by local authorities when parcels arrive.

“In our commitment to providing the best service to our customers and adhering to local customs laws, Temu collaborates with a reputable logistics company with extensive experience in e-commerce packaging,” it stated.

“The logistics company acts as our customers’ agent with the local customs and tax authorities to clear the package, process, and remit applicable taxes.”