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On 19 June 2015, retailbiz.com.au reported a claim by CHOICE magazine that shoppers could face a 250%+ price hike on goods purchased online from overseas if the Federal Government closes a highly damaging loophole in the GST system.


I have to admit that I was surprised at CHOICE’s position on an issue that clearly undermines the viability of Australia’s retail industry, therefore indirectly damaging the long-term interests of consumers.

The article uses emotive statements that at first glance may appear like compelling arguments. But, I’d like to offer an alternate perspective on the issue.

CHOICE claims that if GST were charged on overseas purchases arriving via mail, this would be a “loss-making tax” i.e. the cost of collection would be higher than the revenue generated.

I’ve already tackled this issue in a previous article titled ‘Vultures Circle Australian Retail’, where I proposed GST collection at source as a solution that would allow the tax to be collected at a low cost, making it not only viable but actually highly lucrative for the Government.

This approach has already been applied in other parts of the world.  Amazon, for example, has been forced to pay taxes on sales to its UK customers through a UK branch of the business [http://www.afr.com/…/amazon-caves-in-on-paying-tax-uk-sales…].

So, the true loss-making element of GST in Australia stems from the loophole that allows for GST-free purchases from overseas. At present the Government misses out, local retailers are hurting, whilst consumers receive short-term benefit and wonder why some retailers are going broke. If this was corrected, the Government could raise more than $500 million a year.

CHOICE stated that “the Federal Government risks slugging consumers with massive mark-ups on overseas purchases”. CHOICE Director of Campaigns & Communications, Matt Levey made a claim that “collection and processing fees could add costs of up to 256% for purchases under $100, turning a $20 book from an overseas online store into a $72 book.”

Clearly Mr Levey has been out of touch with what is happening overseas. By enforcing the collection at source model, the only thing the Federal Government needs to do is to stipulate that overseas suppliers must charge GST ($2 on a $20 book, not $52) and then reemit it to the ATO.

Since Amazon and eBay cover close to 50% of overseas purchases in Australia, implementing such a system would be relatively straightforward. We only need the people in power to finally comprehend how destructive the selectively applied GST has been to retailers in Australia.

The next concerning statement made by CHOICE states that “the most important factor in any debate about new internet taxes is making sure it raises net revenue”.

I cannot agree with such a simplistic view. Taxes serve multiple purposes and they always distort the natural value-price relationship. The current GST loophole causes persistent damage to the local retail industry, but CHOICE seems to be okay with that.

Finally, Mr Levey made the comment that “the two main reasons Australians shop online are convenience and access to a greater range of goods and services”.  He then adds, “Pretending they are doing this to avoid a 10% tax is ridiculous.”

It’s obvious to anyone who has worked in retail (or in any other form of commerce) that a 10% price difference makes a massive impact.

Why doesn’t Mr Levey suggest that Coles and Woolworths lower their prices by 10% if it is so immaterial? He obviously wouldn’t make such a suggestion as the supermarket duopoly would be dead in a year as a consequence of the resultant 50%+ reduction in their margins. So, what makes CHOICE think that this is OK for other retailers?

 

I have always had a lot of respect for CHOICE and the work they do, but this time their stance baffles me – they should be protecting long-term consumer interests, not just advocating for the cheapest checkout today.

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ABOUT THE AUTHOR
Andrew Gorecki, MD of Retail Directions, has worked with the retail industry since 1985. Industry insiders appreciate his strategic advice and insights, as he lives and breathes for the industry. Andrew received a nomination for the Australian Entrepreneur of the Year Award in 2010.
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