Will lowering the GST threshold really help Australian retailers?
Lowering the GST threshold will protect local Australian retailers, save jobs and provide the Government with $1.6 billion, according to the many media articles published this week.
The Australian Retailer Association (ARA) welcomed the proposal to reform the GST threshold, which it says currently disadvantages local businesses, however in direct oppostion to this is a very obvious consumer voice, which directly challenges the retail opinon, citing there are other motivating elements behind purchases from online foreign competitors and a lack of GST is not the primary reason.
So Who is making the most sense? And is the GST threshold actually affecting the success of local retailers by encouraging consumers to buy elsewhere?
The retailers – lower the tax-free threshold
Currently any foreign online purchases that fall below $1000 are not subject to GST. For consumers who like to regularly shop online, this is great, but this high threshold has caused huge discontent among local retailers as they have endured their worst sales period for 30 years.
Retail Associations have made it their mandate to vent their spleen to the government because they believe it puts them on an unfair playing field. Some retailers have even suggested the threshold be reduced to as little as $30 to allow them to properly compete with foreign retail giants.
CommSec’s economist Savanth Sebastian is a supporter of this idea saying that if the tax threshold was lowered it would significantly benefit the Australian economy:
It makes the environment more competitive and fair across local retailers as well as online retailers and that’s a good outcome. Yes it means more money into the Government coffers, but that money can certainly be used in other parts of the economy.
Margy Osmond, Australian National Retailers Association chief, also agrees with this sentiment and cites the success of Britain’s £15 threshold as a reason why the Australian government should lower theirs:
If the threshold in Australia was lowered to a similar level, government could earn an extra $1.6 billion and retailers would be able to operate on a level playing field.
The consumers – lowering the threshold won’t change our shopping habits
Australian consumers have been hitting back, highlighting that most people aren’t going online to escape paying GST – they are motivated by other elements, such as overall price, convenience and the fact that some goods are not available for purchase from Australian retailers. So it has to be considered whether or not it is fair to charge tax on something that might never actually be offered in Australia for sale, which is why some consumers turn to the internet. Because of this it seems slightly unfair to slap those items with taxes in an effort to protect local retailers who don’t even sell the item.
So where does that leave everyone?
The idea of lowering the tax-free threshold is not without merit but even if the government was to do so, a 2011 Productivity Commission report stated that whilst lowering the threshold to $100 would collect an estimated $500million in revenue, it would cost twice as much to enforce.
Billabong’s chief Launa Inman suggests retailers stop trying to change the existing law and instead use this as an opportunity to innovate their business, products and services:
We have to learn to adapt. It is a global world now and our challenge is just to get out of there and actually make it happen. I don’t think that’s just the issue of the GST, I think it’s much more than that – it’s rents, it’s labour, and all sorts of things.
It’s about how effective we can be at going out there and finding product offshore at better prices than we do today, and understanding the nuances of where we can save on duty and just be much smarter when it comes to sourcing a product.
This article was re-blogged – thanks to digitalministry.com