Club Factory, Shein and AliExpress get a jolt as govt abolishes duty-free gifts

Cracking down on Chinese e-commerce companies that try to evade customs duty and taxes, the Indian government has removed the provision of duty-free ‘gifts and samples’ from abroad valued at under Rs 5,000.

Under the revised para of Foreign Trade Policy 2015-20, the government has prohibited the import of goods, including those purchased from e-commerce portals.

Following the notification, containers which sought customs clearance as gifts - except for life-saving drugs, medicines and Rakhi (a bracelet or talisman that sisters tie around their brothers' wrist during the festival of Raksha Bandhan) - are completely banned. Interestingly, only Rakhi is exempted from customs duty, but not Rakhi-related gifts.

However, the import of goods as gifts with payment of full applicable duty is permissible. 

This move will impact the business of Chinese e-commerce platforms such as Club Factory, Shein, AliExpress, and a few others as they have been dispatching e-commerce packages as gifts.  Of late, India's customs department has been confiscating consignments sent by them suspecting large-scale underreporting of value. 

The stringent stance of the agencies in the past had forced Club Factory and Shein to keep changing the airports where it receives the consignments. It first started with Mumbai, then moved to Delhi followed by Bengaluru, as the consignments ran afoul of the customs authorities. 

In the past, the Central Board of Indirect Taxes and Customs (CBIC) was looking to limit the number of gifts received to four by each individual. However, it wasn’t feasible to implement this regulation practically. Since then, the agencies have been contemplating to prohibit the clearance of gifts altogether.

While the government has been mulling to introduce 50% taxes and customs duty on products bought from Chinese e-commerce firms, it’s yet to finalise the exact taxes and duties including goods and services tax and customs duty.

Now that e-commerce packages disguised as gifts are banned completely, the business of Club Factory, Shein and AliExpress will be impacted in a big way.

Although Club Factory has been ramping up its seller base on its marketplace, still a major chunk of its orders are being dispatched from China as gifts.