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Shein’s tax perk is as American as apple pie



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The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, June 20 (Reuters Breakingviews) -Shein and Temu are Chinese-founded companies smartly employing some all-American business tactics. The fast-fashion retailer and its rival skirt import levies courtesy of a loophole some critics want to close. That’s easier said than done. Besides, they're not the only ones whose business models benefit from quirks in the tax system.

Singapore-based Shein and its rival, owned by Chinese technology firm Pinduoduo, have lodged in the psyches of U.S. consumers hooked on their inexpensive fashion and oddball goods. The duo can hawk cheaper wares than Western rivals thanks to their lean manufacturing and algorithm-enabled virtual storefronts – but also because of what's known as the “de minimis” exemption. It allows an importer to ship packages to individuals into the United States without paying customs duties, for items worth $800 or less.

Shein and Temu deliver their goods from factories in China directly to the consumer, unlike retailers such as H&M HMb.ST that ship in bulk to local markets and then distribute to customers. A congressional committee concluded that three out of 10 packages coming in through the loophole were from Temu and Shein. In the year ending September 2023, 1 billion shipments entered the country under de minimis, two and half times more than in 2018, according to U.S. Customs and Border Protection.


It’s not a small perk. Apparel and footwear retailers are subject to import duties that can climb as high as 32%. Gap GPS.N for instance shelled out $700 million in import duties in 2022, according to a congressional committee.

It’s hard to close the loophole. First, the spirit of the 86-year-old provision is still valid: to let American residents receive gifts or bring home vacation-bought trinkets without being penalized. Second, policing it would be expensive — more than $80 in cost to chase just $1, one expert figures.

Smart use of tax quirks is an American tradition. Think of private equity firms such as Blackstone BX.N and KKR KKR.N, whose investment managers benefit from the “carried interest loophole”, where performance-related pay is taxed as a capital gain, half the rate used for wages. Getting rid of that – as both President Joe Biden and his predecessor Donald Trump threatened to do – would raise $63 billion in 10 years by some estimates. Yet the loophole endures. Shein and Temu’s critics fret about their Chinese origins, but the real fear is how deftly the companies play Uncle Sam’s game.


Follow @jennifersaba on X

CONTEXT NEWS

U.S. Customs and Border Protection suspended “multiple” custom brokers who process imports from a program that makes it easier to ship cheap items to the United States without paying duties, the agency said on May 31. The crackdown is expected to impact online merchants Temu and Shein, Reuters reported on June 6.

The move is part of a broader initiative announced in April by the Department of Homeland Security, the parent of CBP, to increase oversight of a tax provision known as de minimis.

The provision exempts importers from paying levies on items valued at $800 or less.


US shipments of duty-free goods $800 or less spike US shipments of duty-free goods $800 or less spike https://reut.rs/3X2kVGK


Editing by John Foley and Pranav Kiran

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