Real loser and winner of new GST low value threshold for imported goods

According to the 2016 budget papers, GST low value threshold (LVT) for goods imported into Australia will be implemented beginning July 1, 2017. If approved, this could bring in an additional $300 million in GST within three years. But is this something that will be good for Australia? How will this affect retailers? consumers? importers?

Read on as we explore several major aspects associated with this proposed change in legislation:

Australia and the online shopping craze
Online shopping craze vs brick and mortar shops
The real loser and winner of the new GST threshold

Real loser and winner of new GST low value threshold for imported goods

Australia and its online shopping craze

In one of the articles published in Web Alive, Australian’s spent $26.77 billion on online shopping last year. Further, 4 people out of 10 buy products from ecommerce stores at least once a month.

This accounts to almost 65% people shopping online and the trend is still going up, amidst the news of GST being implemented to LVT. Australia’s total online sales are even forecasted to exceed $32 billion in 2017.

GST low value threshold and the growth of E-Commerce in Australia

Annual growth of online shopping by category

Last year’s data gathered by the National Australian Bank (Bank) shows that domestic personal, homeware and fashion has shown an increased share last 2016. Nevertheless, it is the international homeware retailer that received the highest gain with a 52.8% annual growth.

The annual growth of online shopping based on categories

Annual growth of online shopping based on state

Every state also shows a positive growth with online shopping purchases. Leading the list is ACT with a per capita index of 137.9. Nevertheless, its NSW at 38% and Victoria at 23.5% which had the highest annual share of spending for 2016.

The annual growth of online shopping based on state

Annual growth of online shopping based on small and medium enterprises (SME’s)

The food, department store, homeware and fashion sectors also showed an increased growth with their online shopping revenue boosting sales of up to 58%.

The annual growth of online shopping based on SME’s

Online shopping craze vs brick and mortar shops

With online shopping in a boom in Australia, brick and mortar shops are on a path to extinction. But will the proposed GST low value threshold amendment be sufficient for them to survive?

Last year alone, brick and mortar shops felt just a 7% increase. However, this is very small compared to the 14.2% growth experienced by online shops.

The battle between online shops and bricks and mortar shops

“If customers feel that the addition of the GST to their online purchase will increase prices, and if the Australian dollar remains weaker against the US, we may see a bounce in retail sales conducted in store,” Roger Simpson

This is the optimistic response of the retail industry, chief executive of the Retail Solution said. Nevertheless, they also know that this is not enough to convince customers to buy via in-line store.

Brick and mortar shops should ensure that they deliver excellent services to their customers. Otherwise amidst a potential increase in product price due to the GST low value threshold, customers may still choose online shopping because of the many conveniences it delivers.

Know the reasons why customers are buying online. Click here.

GST low value threshold: a battle between international and Australian retailers

“The Government understands Australians are increasingly shopping online from overseas vendors who are able to offer items without tax. This means goods they provide can be cheaper than those offered by Australian businesses giving an unfair advantage to foreign businesses.
“For many Australian small businesses, this has an impact on competitiveness as consumers flock to purchase cheaper imports.”

This has been the main argument of the government for applying GST to low value threshold products. The table below shows this:

GST low value threshold and the online shopping industry

Who collects the GST of low value threshold products?

At a glance, the government’s argument is pretty solid. To level the playing-field between international and domestic retailers, it’s best to charge both with the same GST. However, who is supposed to collect these GST? How is this to be implemented?

“Online marketplaces that assist in the importation of goods into Australia will essentially be treated as a ‘supplier’ under this measure, and be required to register for, collect and remit GST.” according to The Treasurer.

But eBay is not a supplier. Rather it is a third party online marketplace that connects buyers and sellers. It simply charges rent to its online retailers and resellers so they can peddle their wares. Thus should only be responsible in paying the taxes for the “rental” fees it charges its online clients.

So why impose on them the role of collecting the GST for low value threshold products?

The Government’s argument continues with the below:

“Including online marketplaces ensures that only a limited number of entities need to collect the GST, rather than the multitude of small, individual vendors making supplies through these online marketplaces that compete with Australian retailers here in Australia.”

How much is the cost of collecting GST for low value threshold products?

Amazon shares the same frustrations with that of eBay. It has queried why the Government ignored a recommendation by the previous government’s taskforce advising that a “logistics model” be followed. In this model, it is the forwarders, express carriers, and Australia Post who will be handling the GST collection.

“Logistics providers already have infrastructure in place to collect information on goods coming into Australia and have well-established processes for GST collection for goods valued at more than $1,000” Amazon stated. However, the National Post Service argues that collection at the border will only render Australia Post mail and parcels business unviable due to the significant decline in mail volumes. Thus putting more strain on the financial position of the corporation.

An estimated $900 million is needed for Australia Post to collect GST. Sadly, this is more than the expected $300 million that could be raised with the proposed levy.

Given these numbers, it seems online shopping websites will indeed struggle into incorporating GST collection within their budget in such a short notice. No wonder eBay and Amazon are simply thinking of blocking Australia.

To delay or not to delay the implementation of GST low value thresholds

With just a couple of months left, online shopping websites are requesting the implementation to be delayed for them to comply with the government’s requirement.
“Certainly if you compare it to the Netflix tax, they were given a very lengthy period of time to determine how the actual Bill that was released on Budget night would apply to them and what they could do,” an eBay spokeswoman said.

“What we’re being asked to do here is as the Bill was introduced into the House of Representatives in February, and we’re being asked to comply by 1 July — it’s near impossible.
However, local retailers are adamant for it to be implemented as soon as possible.

“This legislation should be implemented as soon as possible, as we already know that overseas retailers have the capability of charging similar taxes online in Australia,” Russell Zimmerman, Executive Director of the Australian Retailers Association (ARA) said,
“These big global players already collect GST for digital products, therefore we want to see these retailers register and collect GST as of July 1 this year.”

Digging deeper – why are Australians buying from international retailers?

The government and local retailers believe that one of the reasons customers shop online is for them to avoid GST or customs. Sadly, in a survey conducted by the consumer group Choice, only 12% of people do shop online for this matter.

So if it’s not the GST that’s prompting customers to shop online, what is it?

Super high prices of Australian products

In 2014, the World Bank declared Australia as one of one of the most expensive economies in the G20 while Klynveld Peat Marwick Goerdeler (KPMG) revealed Australia as the second-most expensive place in the world to do business.

“[Rather] than taxing foreign goods the government should focus its attention on why Australian prices are so high. The tax will reduce competitive pressure within the domestic Australian economy, and (as a consequence) expose Australian consumers to government-sanctioned higher retail prices.” Davidson and Berg

Lesser quality of customer service and long delivery time

The truth hurts, but most Australian-based online shopping sites do not offer the same level of excellence provided by its international counterparts. While international brands offer click and collect options, it’s Australian competitors are offering a 4 to 7 day delivery time.

Quality of products

While many online retailers still believe that it’s the lower price offered by these non-paying online retailers is the reason for their lower revenue, these international retailers continue to offer Australians with something new, something that they isn’t offered in Australia yet. These international competitors are innovative to offer the Australian market something exciting, while the local industry remained offering them same “boring” stuff.

The real loser and winner of the GST low value threshold

In conclusion, adding GST to low value threshold may indeed benefit the government, if and only if these big online shops will continue trade in Australia. As for the local retailers winning the battle, they better think again.

Australians have come to expect shopping to be fun, fast, full of choice and open 24/7. They don’t shop because of cheaper prices. They don’t even mind paying a little bit of extra for international shipping.

What they want is excellent service and unless local online retailers can deliver these to them, they will most definitely lose the war.

PS – As of 19 June 2017, The Turnbull government has secured support for the plan after Labor moved an amendment in the Senate on Monday delaying the above-mentioned plan’s start date from 1 July this year to 1 July next year.