The EU has plans to charge customs duties on low-cost goods. This could affect imports from online retailers, and a London listing that was hoped for by fast-fashion seller Shein.
This potential change is a response to growing concerns among retailers in mainland Europe and the US over the increasing competition from Chinese-linked marketplaces Shein & Temu. These platforms exploit a loophole which excludes low value items from import duties.
In the EU the threshold is €150 (£127), and in the UK, it is £135. This allows retailers like Shein ship directly from overseas to customers in these markets without having to pay any import duty. Import VAT is not charged on items worth less than £39 in the UK.
The subsidised postage in China makes it more cost effective for businesses to send low-cost goods by air.
According to a spokesperson for the European Commission, “In May of last year, we presented customs reforms in order to create a simpler, safer and smarter customs union.” We have now proposed that packages with a value below €150 are no longer exempt.
The European Parliament will meet again in the second half of this month to discuss and accept the e-commerce proposals.
According to a Financial Times report that highlighted this potential change, last year, 2.3 billion items were imported below the duty free €150 threshold into the EU.
Imports by online retailers more than doubled from April to March.
John Stevenson, a Peel Hunt analyst, stated that the impact on Shein of a rule change “would be enormous depending on the territories”.
He said that some countries charged import duties up to 30 percent. Shein would be forced to change its entire business model or raise prices, or even take a loss on profits, if they had to pay these taxes.
He said that the whole model was based on not having to pay duty. It would have a huge impact.
Stevenson was sceptical about the ability of EU countries to close this loophole on a short-term basis, given the cost and complexity of checking billions upon millions of parcels.
He said that if Shein were to launch a London listing as expected in the autumn, this issue would rank high on the list of investors’ concerns, along with any potential ethical issues within its supply chain.
Shein faces competition from other social media retailers, such as TikTok Shop, Temu and the return of shoppers to the high-street after the Covid scandal, which helped Primark.
Earnest Analytics’ research found that Shein customers in the US spent 43% of the online discounts they received on the brand during the month, compared to 66% just a year earlier, before TikTok was introduced.
Donald Tang, Shein’s boss who is currently on a fact-finding mission in Europe has stated that he supports reform of the import duty threshold. He told Politico that “we want fair competition in the world”, and the tax break is “not fundamental to our success”.
Shein stated in a press release that it “is fully compliant with UK Tax Policies and pays all applicable taxes, including Corporation Tax, VAT and Employment taxes”.
Shein’s success is a result of our ability to create fashionable products for customers. Our flexible supply chain and on-demand model allow us to keep our prices low.
This reduces inefficiency and waste, as well as lowering our unsold stock. This has been the driving force behind our growth.
The UK retail sector has called for the government to investigate the loophole in light of the increasing competition from Shein & Temu.
Simon Roberts of Sainsbury’s & Argos called for a new government on Tuesday to examine unfair taxes, including import duty and business rates.
He said: “I’m going to close the loopholes for businesses that don’t pay tax correctly, so that everyone is on the same playing field.”
Theo Paphitis and Simon Wolfson of Next, who owns the UK retailers Ryman & Robert Dyas and Ryman & Robert Dyas respectively, also urged the UK government review the loophole.
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