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The Labor leadership is resisting calls to close a tax loophole used by Shein as the party tries to encourage the controversial Chinese fast fashion company to set up shop in London.
Tax campaigners and some retailers have urged Labor, if the party wins the July 4 election, to crack down on Shein’s use of a loophole in the law where companies can avoid import duties by sending small parcels directly to customers.
But Labor has said it has no plans to do so.
Shein’s planned flotation, which could be valued at around £50bn, is likely to be a major test for the new Labor government as the party tries to balance its centre-left policies with an attempt to burnish its pro-business reputation.
Shein has also faced allegations of forced labor in its supply chain, which the company denies, saying it “has a zero-tolerance policy for forced labor.”
Labor is trying to demonstrate that it would support investment and growth in government as it heads for a widely expected victory in July’s general election.
The party says the London Stock Exchange should welcome Shein’s flotation. They argue that a UK listing would impose higher regulatory standards on the company.
But UK retailers have criticized tax loopholes used by online-only retailers such as Shein and rival Temu, in which they send small parcels directly to customers rather than via distribution centres, as unfair.
Rachael Henry, head of advocacy and policy at Tax Justice UK, said multinational corporations often take advantage of “unfair loopholes” at the expense of smaller rivals.
“The fact that the US and EU appear to be paying more attention to the tax measures of global online retailers signals that the incoming UK government should do the same,” she said.
Retail entrepreneur Theo Paphitis said it was “unbelievable that the government has not intervened in the gaping tax loophole”, adding that it was “at the expense of British companies who are paying their fair share”.
Anna Bryher of Labor Behind the Label, which campaigns for workers’ rights, said: “Many are hailing Shein’s IPO as an opportunity for the UK economy. But Shein uses his business model to avoid paying taxes around the world.
Retail veteran Justin King, who is a long-time campaigner for tax reform in the sector, said the loophole was “just the sharp end of a wider problem”.
He added: “Blocked or not, online [only] retailers don’t pay taxes on the services they consume, and the retailers they compete with do and actually subsidize them.”
Business rates paid by brick-and-mortar retailers contribute to the cost of local services such as waste collection, road maintenance or street lighting.
Lord Simon Wolfson, chief executive of UK retail bellwether Next, has previously called on the government to close the loophole.
Investors also expressed concerns ahead of Shein’s IPO. One large asset manager said: “[Shein’s] the business model is unsustainable — one reason is the tax loophole. They’ve built an empire on this and it could be shut down at any time.’
Some Labor members privately believe the party should address the issue if it wins the general election. “It’s certainly something we’ll look at whether it’s listed (in the UK) or not,” one said.
But a spokesman for shadow chancellor Rachel Reeves denied the Labor government was taking action against Shein’s tax loophole.
One Labor official said the party would – if it won the election – take a tough line on Chinese investments where international security is at stake, such as semiconductor factories or high-tech investments. But Shein didn’t fall into that category. “This is a different ball game,” they said.
Shein said it is “fully compliant with all tax policies and pays relevant taxes including corporation tax, VAT and employment taxes.”.