The New Tariff Guidelines
The new tariffs mentioned last month by the South African Revenue Services are already up and running meaning whoever purchases and imports items online will be paying more than the advertised selling price. Temu ad Shein were using outdated import duty laws to bypass the system which previously stated items under R500 were exempt and thus duty free.
The grey area does still exist to some extent as the online advertised prices does include, packaging, shipping and final courier delivery fees. If an item cost R200 the chances are the actual cost of that item will be below R100 which is the number the duty will be calculated on. I have read some reports where they guessed the extra fees were around 15-20% and no courier would deliver for that rate and we have not included packaging and shipping. I was being kind when I mentioned half the price would be the real value of the item and a realistic number would be 20-25%. After reading their business model that 20-25% cost may actually be between 12 and 15% which I will discuss later in the post.
You may laugh at this story I am going to tell you because this is true and something I had to do in the past. I needed to order spare parts from the factory in China and I received the costings/prices. In order to make the prices believable I had to increase them in order to not be questioned by the people checking the duty being paid. They may think I had made the prices cheaper to avoid paying more duty and I thought it was safer to inflate them.
Temu and Shein would not like their customers to know the real prices so these figures will be inflated which gives the tax man more revenue. I have seen some of the junk my family has bought from these Chinese online platforms and I am amazed at what people buy and then they also believe they have got a good deal.
The good news is that clothing that may seem relatively cheap will now have an additional 60% cost added on being 45% duty and 15% vat. That cheap item may not necessarily be that cheap any more and customers will only find out how much they will pay extra once the item is ready for delivery.
This will have to impact the volume of sales the likes of Temu and Shein have been doing and how much this will negatively impact their revenue.
Why Are Temu And Shein So Cheap?
Temu and Shein have a some what unique business model where they have manufacturers involved in reverse auctions bidding for the supply. These two sales platforms are so big they can get the cheapest prices by having manufacturers competing for their business by undercutting the prices. I have bee involved in reverse auctions and the only winner is the one doing the buying. One can understand why the quality of these items are relatively poor as they have to change their specifications to make profit.
I need to know what s taking place with these 2 particular companies as they are my closes competitor price wise with regard to replacement trampoline mats locally. Now that there is an additional 20% import tariff they are no longer competitive and we can take advantage of this situation. Perfect timing really as we are about to start up this section of the business which has basically been dormant for 6 years. This I know is very lucrative and yet was ironically ignored by the previous business owners due to lack of cash funds. When you have a cash cow you keep it going and they seemed to lose the plot entirely.