Australia Budget Eyes GST Threshold on Overseas Purchases, Should We Be Worried?
Goods currently bought online from overseas retailers that are under the value of $1,000 are not subject to goods or services tax. However, in December 2014 assistant treasurer Josh Frydenberg announced that he would review the loophole, on the basis that local retailers were claiming it was difficult to compete. This review could see the end of significant online bargains from overseas for products such as TV’s, books and clothes.
If Tony Abbott’s assistant treasurer goes ahead with the reform we Australians could see the prices on these sorts of items skyrocket due to less competition in the market. The Australian Retailers Association has been lobbying to close the tax loophole for over five years, but what would this actually achieve besides helping line the pockets of large retailers locally even more?
The main gripe from Australian retailers is that the loophole gives overseas counterparts and unfair price advantage. But what is all the fuss about really?
The National Australian Bank estimates that Australian citizens spent $16.3 billion on online retail during the twelve months leading up to November 2014. To put this into perspective this amounts to only 6.8% of spending that occurs within traditional brick and mortar businesses (excluding cafes, restaurants and takeaway food) within Australia.
Russell Zimmerman, the director of the Australian Retailers Association said, “The remarks I’ve heard so far are quite strong. I think the government are quite concerned about the loss of revenue not being collected.”
This may be the case, but the larger problem is how does the government implement a system that captures more GST from overseas purchases without incurring more costs. Matthew Levey, Director of Campaigns and Communication at consumer group Choice stated, “if the issue here is about local retailers feeling uncompetitive, then we should look at what’s making them uncompetitive… we should support the idea of a level playing field.”
“We don’t want to penalise consumers for no benefit” he continued.
So, the Australian Retailers Association and the Australian government want to decrease the tariff on imports. They have both been talking about it for a while, but why hasn’t anything been done? Especially when this could bring our country more income.
Currently the Australian Customs and Border Protection service along with the Australian Post, are responsible for collecting the taxes and duties for handling parcels under the value of $1,000. A report was conducted in 2011 by the Productivity Commission which revealed if the GST was lowered on imports then the government would generate additional revenue of $600 million per annum. This is great right? Wrong, because generating that additional income would cost the taxpayers $2 billion. These costs would be associated with hiring more Customs staff to manually handle packages and additional Australian Post staff to contact and assist with customs declarations. Then there is the eventuality of having to use more storage space.
At the moment the move seems unlikely due to the high costs associated with implementing the change, but there have been leaks of information that the government are looking for a task force to reduce time and costs.
Sticking to the hard evidence for now, however, consumer group Choice released information on December 3rd 2014 that a Revlon lipstick costs $25.95 in Australia. In contrast, that same lipstick in the UK and the US cost $15.09 and $7.89 respectively. Even if GST was added to these overseas prices they would still cost less than if bought in Oz, so surely something can be done here on the retailer's side?
Ultimately the government could change import restrictions tomorrow and we wouldn’t be able to do anything, but, the concern for Australians is can we collect the money in an economically viable way. Also would the reduction only empower retailers in Australia to take even greater advantage of consumers?
Here’s an example for you to consider; when popular game God of War 3 (the collectors edition) was released, online gaming retailer EB Games won exclusivity for distribution rights in Australia. You couldn’t buy the game anywhere else and as a result they priced it at a staggering $250 per copy. Yet that same product on competing international gaming website Play-Asia only cost $100 including free shipping.
In light of this I really hope that an open and competitive marketplace in maintained where we Australians are given the choice of buying overseas. I say this on a personal note because I don’t want to have to pay inflated prices for no reason. Also, hopefully being able to do so will continue to encourage retailers to become more competitive on the world stage, not less so.
I have one final comment for Josh Frydenberg, I hope you read this report from National Australia Bank which states that even a reduction to a $25 threshold would only generate GST revenue of $309 million.