Japan mulls taxing small parcels as Shein, Temu expand

[TOKYO] Japan is mulling a review of tax exemptions for small parcels including those shipped from China, joining a slew of governments stepping up scrutiny over a duty-free channel used by Shein and PDD Holdings’ Temu.

A government tax experts group last week discussed problems related to existing tax exemptions for small parcels shipped to Japan, according to the Cabinet Office. They looked at concerns about fair competition and the channel being a conduit for illegal drugs and counterfeit goods into the country.

If the exemptions are revised, small parcels containing products bought from Shein and Temu shipped into Japan could be subject to the country’s sales tax, which mostly stands at 10 per cent. Parcels that are worth less than 10,000 yen (S$89) are currently broadly exempt. A separate panel set up by the Finance Ministry is also looking into similar issues.

“Nothing has been decided yet on reviewing the exemption,” Japan’s Finance Minister Katsunobu Kato told reporters on Tuesday (May 20). “But we will continue to mull this while looking at overseas cases and the impacts they have seen.”

Japan’s deliberation over small parcels is the latest escalation in the global scrutiny on the tariff loophole Shein and Temu has been relying on for years to sell cheap wares to consumers around the world. US President Donald Trump’s move to revoke the so-called “de minimis” tax exemption for small parcels from China earlier this month has inspired other governments to look into similar tax exemptions.

The European Union earlier proposed abolishing the duty exemption for parcels under 150 euros (S$218) around 2027 to 2028. That was followed by a review announced by UK Chancellor Rachel Reeves of the country’s own de minimis rules.

France also proposed slapping fees on small packages from the discount retailers as a stopgap measure before the wider European overhaul kicks in.

The US de minimis removal has already forced Shein and Temu to charge higher prices on some of their products or asked US consumers to pay import charges that can be higher than the price of the goods they bought. Sales have taken a beating for both Shein and Temu in the US following the e-commerce platforms’ price adjustments.

The US measures have also raised fears that more cheap Chinese merchandise could flood other markets.

Eliminating the tax exemption could also benefit Japan’s public finances. The number of small parcels shipped into the country has surged around five-fold over the past five years, according to the Finance Ministry, fuelled in part by a pandemic-era boom in cross-border e-commerce. BLOOMBERG