Temu and Shein tax loophole in South Africa closed

The National Treasury’s Budget review document for 2025/26, released in March, indicated plans to re-evaluate VAT exemptions for imported low-value goods. A section titled “Other matters under consideration and consultation” specifically mentioned a review of the exemption in the VAT Act of 1991. Finance Minister Godongwana stated that the government intends to “bring parity to the VAT treatment of such goods purchased online, as many offshore suppliers of these goods are not registered for VAT.”

While no companies were explicitly named, the import tax practices of Chinese e-commerce giants Temu and Shein have been under scrutiny since early 2024. Local online retailers and manufacturing representatives in South Africa have long highlighted that foreign importers exploit tax loopholes, allowing them to significantly undercut domestic businesses.

Industry sources explain that this issue stems from a 2007 Sars concession. This allowed importers to pay a flat duty rate of 20% without VAT on low-value imports under R500. The concession was originally introduced to simplify customs clearance processes for logistics companies as international e-commerce grew. However, local retailers argue that this was exploited to bypass the 45% duty on imported clothing, creating an unfair competitive environment in the clothing and textile sector. In 2024, Sars estimated these loopholes resulted in tax losses of nearly R3.5 billion due to the surge in global e-commerce.

Warrick Kernes, founder of Insaka eCommerce Academy, told City Press that ensuring VAT is charged on low-value imports is crucial for levelling the playing field for local e-commerce platforms. Kernes noted that these new tax regulations would inevitably make international purchases more expensive for consumers, prompting them to reconsider such buys. He suggested that South African retailers can better compete by adding value, such as offering faster deliveries.

Sars initially responded to industry complaints by announcing it would levy the full 45% clothing tax on all applicable imports, including those under R500, starting July 1, 2024. However, that plan was indefinitely postponed. Instead, Sars implemented an interim measure from September 1, 2024, beginning to levy 15% VAT on top of the existing 20% duty on low-value orders.

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From November 1, 2024, Sars also planned to reconfigure the 20% flat duty to align with World Customs Organisation (WCO) import guidelines. However, these new rules were only implemented in February of this year, requiring additional time to balance the interests of various industry stakeholders.

Garry Marshall, chair of the South African Express Parcel Association, maintained that the Chinese retailers and their logistics partners did not act illegally at customs. He identified the core issue as the mechanism’s negative impact on South Africa’s clothing and textile industry. Marshall also warned that scrapping the concession entirely could have disastrous consequences for import procedures, as its primary purpose was not to reduce consumer costs but to speed up deliveries. He explained that the majority of courier traffic is cleared through customs before even arriving in the country, and submitting full documentation with all tariff codes could delay shipments for days.

Sars has yet to publicly communicate its de minimis and full declaration value thresholds, which makes it difficult for consumers to accurately estimate the total cost of an imported item.