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