GST on online imports: time to stop the debate and act

GST-goods-and-services-taxOn April 24 2017, Kathrin Bain, a lecturer at the School of Taxation and Business Law at UNSW, wrote an article with a critical stance on the government’s plan to apply GST on overseas online purchases commencing July 1 2017. Kathrin’s argument is that this would not “level the playing field” between local and international retailers anyway.

Having spent more than 30 years working in retail, I have witnessed first-hand the many legislative obstacles that have hamstrung the industry. In recent years, I have argued and lobbied against the GST loophole on international purchases made online, which has had extremely detrimental consequences for local businesses.

Given my passion for seeing Australian retailers get a fair go at being successful, I feel it is my duty to offer an alternate point of view to Kathrin’s argument.

Kathrin states that Australia would “unfairly impose GST on goods purchased from overseas sellers, that wouldn’t be subject to GST if purchased from an Australian seller”.

This statement contains an error. Let us prove this by using the example of an item that costs $50 to purchase from the manufacturer and which is sold for $80 to an Australian consumer (ex. GST).

If the product is sourced locally:

  • The retailer will pay the local manufacturer $55 and then sell the item for $88.
  • The manufacturer would then remit $5 to the ATO and the retailer would pay $3 ($8 less $5 GST credit).
  • The ATO will get $8.

If the same item is sourced overseas:

  • The overseas vendor will pay an overseas supplier $50.
  • Under the present regime, it will then sell it directly to an Australian consumer for $80. No GST collected.
  • Under the new regime, the vendor would have to charge $88 and remit $8 to the ATO.
  • If the original goods still originated overseas and were imported by an Australian retailer, the retailer would have to pay the initial $5 GST to clear the goods through Customs, and then an extra $3 once the goods are sold. Once again, the ATO gets $8.

Kathrin’s article also includes the common objection of those who oppose GST on online overseas purchases – the claim that collection of the tax will be an issue and that the ATO will not collect any additional revenue. This too does not hold water. With the intended collection at the vendor side, the costs will not be much higher than collection from local retailers. The author also views the application of this new GST regime to ‘redeliveries’ as an unfair penalty. Again, the facts do not stack up. For example, if something cannot be shipped by Amazon US to an Australian address, you can order the goods for delivery to a US-based redirection service, such as MyUS. No GST is payable in this instance, so it is only fair that it will need to be collected on the shipment when it crosses the Australian border. Without such a mechanism, a loophole would have been created in the new system.

Finally, the author comments further about the issues with tax collection and how important it is to make sure that any new rules are practical and enforceable. These are valid and important points, and, given Kathrin’s expertise, I would value learning her views on how to make the new GST initiative water-tight. In the absence of such constructive commentary, I feel obliged to address the fundamental misunderstanding about the retail industry implied in her article.

Australian retailers must navigate a highly challenging and restrictive environment. We pay higher rents, higher wages, and must operate under stringent regulations in comparison to most retailers overseas. Furthermore, Australia is a law-obedient country – we diligently follow the rules.

Allowing overseas competitors, who often have lower operating costs, to charge 10 per cent less because they have been immune to GST, has been, and continues to be, an additional harsh impost on local retailers.

The consequences of the above-mentioned pressures manifest themselves in three ways:

  • Some businesses cannot cope and go bankrupt. Ever growing pressure on the industry does not have linear consequences. At some stage a retail business will crack, as evidenced by the number of retailers going bust over the last few years.
  • Other businesses try to cope by reducing the quality of their products, so they can buy them cheaper and increase their margins.
  • Another approach is for business to lower their customer service, to reduce labour costs. One of our leading department stores is well known for people walking out after they selected their wares because they could not find any staff to take their money.

If we do not look at the issues facing the retail industry holistically and make the playing field more level, expect more bankruptcies, lost jobs, inferior products, and lower quality of service. Such symptoms indicate that the existing tax regime is wrong, as it produces negative consequences. Instead of attempts to keep the old messy system in place, we need a new set of rules to give business a fair chance to succeed and serve their customers well. It is time to stop analysis-paralysis and act.

Andrew Gorecki is managing director of Retail Directions and a 30-year veteran of the Australian retail industry. He can be contacted at [email protected].

Comments

6 comments

  1. Fred Housego posted on April 28, 2017

    Alas the arguments in this article just don’t hold water. Every official body which has looked at the issue of GST on low value imports has declared that the $1000 level should stay. In 2011 the Productivity Commission concluded that inspecting low-value imports at the border to assess their GST liability would cost more money than it would raise. Fact. Imposing GST on imports means that some goods which are GST free in Australia will have GST imposed at the border. Fact. GST on imports means that some companies like ebay, which would be forced in the Australian tax system will now refused to deal with Australian consumers, and lock them out of their ecommerce platforms. The proposal to eliminate the $1000 threshold before the GST is levied on imported goods is not a tax integrity measure. It is a tariff, and one that will have serious repercussions, mostly around consumer choice. The Australian consumer buys from overseas not because goods are cheaper, but because they just can’t get the goods they want in Australia. There just is not the wide variety of goods that is available overseas. Imposing GST on imports will do nothing other than protect some Australian bricks and mortar stores that should quite frankly look at just being more competitive and sell what the consumer wants. I cannot honestly believe that the writer wants to make the Australian retail landscape worse, and impose a tax that doesn’t raise any money. Perhaps it’s time to axe the plan to tax once and for all. reply

    • Daniel Healy posted on April 28, 2017

      Fred my wife and I owned and operated a shoe store for 14 years carrying on average 120k 140k worth of stock which is indicative of a wide variety of shoes. I can tell you from first hand experience that on a daily basis consumers would come to us to try on, only then to shop online overseas to a cheaper alternative. We could not compete with this which eventually led to us leaving the business. We employed over 30 people mainly young Australians possibly like your children some of whom became doctors, engineers, nurses, and it was always a good feeling to be part of there development. Unfortunately when we shop overseas some may say we are shooting ourselves in the foot, or we don't really care about the future of our children. What goes around comes around. reply

      • Eddie Peters posted on April 28, 2017

        You are exactly right. The problem is that many Australians don't think of the flow on effect from shopping overseas and how it affects employment opportunities for us all and for future generations. Imagine if instead of buying from local stores we all shopped online overseas. There wouldn't be any jobs for us at all and then the tune would change real quick. Perhaps if this system isn't changed we should employ overseas Pollies instead, because I am sure they too would be much cheaper than our lot. Think about it folks. If your Job could be done overseas, then its possible that if we don't change the legislation to an equal and level playing field that your job just might go overseas sooner than you think. Is it worth risking buying something overseas to save a few dollars if the consequence is that you lose your job? If you do the sums. I think you will agree that the Government needs to make us all pay the same fees. That is all Australian Businesses are asking for, nothing more than that. reply

  2. Mike Leask posted on April 28, 2017

    The fact remains! The GST is a CONSUMPTION tax, not a TARRIFF. All goods consumed in Australia (save for some exceptions) require a consumption tax of 10% to be applied, whether sourced overseas or not. The argument for expanded product range overseas does not hold weight! You can still buy the goods online overseas, but you will have to pay GST if you want to consume them in Australia. Simple. It will create a fairer market place and a level playing field where Australian retail margins, employment and businesses can be preserved. If nothing else, the additional standards of employment, workplace safety, superannuation, rates and taxes, etc which all contribute to our society, need to be protected, even if the revenue take is neutral or negative. reply

  3. Jeno posted on April 28, 2017

    Whilst a fair playing field is essential to our retailers there is a much larger picture, our economy. Our retailers employee staff who pay Australian taxes, our retailers make profit that benefits our economy and pay taxes to state and local governments. The question is do we want to support and in the long term have an economy or do we want to sell out to foreign companies who contribute nothing to society. We must impose some level of taxes on all imports and impose costs to collect these taxes. As an importer I pay customs and quarantine charges (not taxes) on all good I import for retail sale, not just GST. Its not a question of is it cost effective. Its do we want an economy in 10 or 20 years or just vacant shopping centres where even the food courts struggle. I am also guilty of retail purchasing overseas, its far to easy now. reply

  4. Eddie Peters posted on April 28, 2017

    Next week there will be a petition online on Change.Org calling on all Federal Politician's to change the legislation to scrap the $1000 Import Threshold. The entire Australian Business Community needs to get behind this petition because there is a push by the Labor Party to delay the implementation of everyone pays at least the GST portion starting from the 1st July 2017. This cant be stopped, because far too many Australian Businesses will close and thousands of Aussies will lose their jobs. Add to that we will see youth unemployment skyrocket because there wont be any jobs for them either. reply

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