Online tax threshold: the verdict

 

Online shopping conceptThe Federal Government will not reduce or abolish the threshold for the goods and services tax (GST) on online transactions after a meeting of small business ministers this month.

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The meeting noted that state and territory treasurers could “not progress further work on options to lower the value at which the GST is applied to import goods given that states have been unable to agree a preferred workable approach on this issue”.

It is understood that the stumbling block to changes is a concern by governments that the cost of collecting GST on low value transactions could be higher than the amount actually collected.

In discussions last year on the reduction or abolition of the $1000 threshold for GST, the Federal Government indicated it may be willing to act if state and territory governments were prepared to meet any shortfall between the amounts collected and the cost of collection.

The small business meeting in Perth was attended by the Federal Minister, Bruce Billson, and ministers from Western Australia, Victoria, Queensland, and Tasmania.

The low value imports threshold (LVIT) remains a contentious issue for bricks and mortar retailers who believe it has a significant impact on sales, notwithstanding that international online transactions have been slowed by the fall in the value of the Australian dollar.

Australian retailers want the threshold for GST on online purchases lowered from $1000 to just $20, and most states were keen to support this, although Western Australia was opposed to any change.

A report by the Productivity Commission in 2011 also argued against the lowering of the threshold, claiming the tax change would result in a greater economic burden than benefit with the collection costs exceeding the revenue derived from the change.

The commission said lowering the threshold to $20 would raise more than $550 million in tax, but the cost of processing using the current system would escalate to more than $2 billion.

Research by the Australian National Retail Association (ANRA) and Ernst & Young claims the change would provide an economic benefit, ensuring that Australian retailers are competing on a level playing field with online retailers based overseas.

Reasoning

Last year, describing the threshold as “an anomaly”, Billson said a change would require the agreement of all states and territories, with the key issue for the Federal Government being “tax neutrality and tax efficiency”.

Accepting the commission’s warning on the collection costs, Billson said there would need to be a change to the collection system if the threshold was to be lowered.

While ANRA, the Australian Retailers Association (ARA), and many chain retailers, including Solomon Lew of Premier Retail, have pushed for the lowering of the threshold, the National Online Retailers Association (NORA) is unsurprisingly against any change, arguing the internet should be seen as an opportunity, not a threat.

Cash strapped state and territory governments were warming to a change in the GST threshold, with a review by two former state Premiers, John Brumby and Nick Greiner, supporting the imposition of the tax on purchases from overseas retailers.

Concern about the potential gap between collections costs and revenue raised has apparently cooled the enthusiasm of the state and territory governments, notwithstanding the impact on Australian retailers of a tax threshold that is acknowledged as high by international standards.

Lew argues Australian retailers are disadvantaged in both their store networks and online businesses, with no local online business capable of reaching its full potential while a flawed two tiered tax system remains in place.

Lew claims the Federal Government is pandering to “perceived populism at the expense of sound public policy and failing Australians and the hundreds of thousands of people who work in retail, Australia’s largest employment sector as well as failing Australian entrepreneurs who want to set up new online businesses”.

“It is very hard to compete when your own Government is on the side of foreign competitors,” Lew said.

Comments

6 comments

  1. Avatar

    James Bradley posted on October 24, 2014

    This is crazy on the governments behalf. They are missing out on income, company, payroll, and gst tax. Plus super. Its more than just the GST its costing the government billions of dollars each year they dont realize this. reply

  2. Avatar

    Colin Scott posted on October 24, 2014

    I presented submissions on this topic to the Productivity Commission recently. The subject affects all retailers and is extremely important for Australian retail to be competitive in the world market. This report should state the reason, which is WA, the only state minister to object to lowering the GST on imports under $1,000. WA retailers need to ask the question of their Minister and Premier because the rest of the States are on side. Colin Scott, Managing Director, Frontline Hobbies, Newcastle and Australian Retailers Association member. reply

  3. Avatar

    Ben posted on October 24, 2014

    James you are correct, the missed GST (and Duty) is the least of the issues as you say. I estimate we are loosing about 50% of our online sales to overseas online purchases, if they were made here we could employ more people and pay all the associated taxes, we would also pay more company tax. So we should be investing in online but it is hard to do this when 50% of your sales are lost to overseas ...... If you are trade exposed it is really worth going online ? The cost to the government is far greater than the lost GST revenue. What i cant understand is why we are one of if not the only country in the world that has such a high import threshold, the UK have dropped their threshold from 18 to 15 pounds and ours in $1,000 ......... reply

  4. Avatar

    Michael Compendium posted on October 24, 2014

    Small Business Ministers? What's the qualification? The buck might just stop somewhere as long as it's not with them. Is this a vote decision or a commercial decision. By commercial, we know there will be monetary benefits and hell who knows there might even be economic benefits and a bit of help for bricks and mortar resellers. However I imagine the cost of implementation far outweighs the monetary benefits. Possibly time and a half and double time contribute to those costs and of course bloated departments to see over it. So what is the real reason .... wish someone would tell me. It might just be that we dare not talk about because it contradicts free speech. We're going to hell in a handbasket. Sorry that's wrong. There's a bloody big iceberg out there and we're on The Titanic. reply

  5. Avatar

    Simone Brodie posted on October 25, 2014

    I go online overseas because a) Australia is a retail gulag and b) saving *at least* 40% with each and every purchase compared with the local grubs. Saved $2000 on a bass guitar recently. $2000. Australian retail is a putrid mess. limited range, extremely poor availability, absurd prices. reply

  6. Avatar

    Clunking Fist posted on October 29, 2014

    Simone, your comments show that Aussie and Kiwi retailers need to do a better job communicating the issues they face. So GST counts for a fair chuck of the 40% difference But the rest is often attributable to the fact that manufacturers sell their products to ANZ retailers at a HIGHER PRICE than to retailers in, say, UK and USA. This is changing: Rebel Sport shamed Adidas during the last Rugby World Cup: you could buy All Blacks jerseys cheaper online from overseas than what Rebel were charged by Adidas. Such was the outcry, that Adidas promised to change their policy to one world price for their products. I have no idea whether they are sticking to this. Rebel took a risk in badmouthing a supplier, but it gave them positive coverage in NZ at the time. reply

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