26 November 2013
CHOICE has for the first time revealed the size of the ‘internet tax’ proposed by local retailers, saying consumers and the economy more broadly would likely suffer from such a knee-jerk response.
In a proposed model, the cost of a $20 parcel would rise to over $35 under the ‘internet tax’, with the addition of delays faced by consumers required to pay for collection.1
“You can’t have a cost-benefit analysis that ignores costs to consumers, and right now there are proposals that would charge consumers over $13 for the government to collect as little as $2 in revenue,” says CHOICE Director of Campaigns, Matt Levey.
“Australia does not need a new tax on the internet designed to prop up parts of the local retail sector, hitting consumers with big costs and delays, and dragging down our competitiveness.
“We continue to hear arguments that states are being denied hundreds of millions of dollars in GST revenue because of the $1,000 low-value threshold on imported goods, but this glosses over the substantial expense of collecting the tax without reforms to parcel processing.
“The fact is that if you lower the threshold without streamlining the process, you turn every parcel delivery business into a doorstep tax collector, and hand consumers big costs, delays and bundles of red tape.”
CHOICE says that proposals promoted by some retail groups would see consumers foot the bill not only for the GST and parcel delivery, but for the delivery company’s costs in collecting the tax.
The consumer group has repeated its support for a level playing field for local and overseas retailers, but says this should not be achieved by imposing costs that outweigh the benefits.
“This is not about the 10 per cent GST. In many cases it’s an additional 60 per cent or more for collection, along with delays and paperwork,” Mr Levey says.
“Bizarrely, the ‘internet tax’ would not even address the main reasons Australians shop online overseas, which have nothing to do with the GST.”
CHOICE recently released research showing the top reason Australians purchase online is so they can shop at the hours that suit them, followed closely by the convenience of getting products delivered to their door. Only 12 per cent nominated saving on “paying duties and taxes by purchasing on overseas websites.”2
1. The UK’s Royal Mail charges an £8 (A$13.60) collection fee for assessing a parcel for VAT and customs liability. If Australia was to adopt the approach of the UK, and was to also to lower its LVT to $20, then a $20 parcel transaction liable for GST would increase with the 10% GST and the ‘collection fee’ to a total cost of $35.60. Reports indicate that retail groups have proposed a detailed system to the Australian Government similar to the UK model. Seehttp://www.theaustralian.com.au/national-affairs/policy/brumby-urges-reform-saying-tax-threshold-a-reverse-tariff/story-fn59nsif-1226754536560
Retail groups have also called for the LVT to be lowered to $20: “The new Government has access to more than enough information on the issue to allow a quick decision on a reduction. There really is no excuse not to fix the GST loophole; even the previous Government said it should be done and now is the time to reduce the collection amount from $1,000 to international levels of around $20” – Russell Zimmerman, Australian National Retailers Association, Media Release, 18 September 2013
2. See ‘Retailers’ GST Campaign Discredited’, 26 September 2013
Myth-busting the ‘internet tax’
Myth 1: Australia is being denied hundreds of millions in GST revenue because of the $1,000 GST low-value threshold. The facts: This is imaginary revenue. Without reforms to parcel processing, research has shown that the current costs and delays of collecting the GST would outweigh the benefits.
Myth 2: Online shopping is costing local retail jobs. The facts: The vast majority of online retail is domestic. In addition, CHOICE’s research shows the main reasons Australians shop online are so they can shop at the hours that suit them, followed closely by the convenience of getting products delivered to their door. Only 12 per cent nominated saving on “paying duties and taxes by purchasing on overseas websites.”
Myth 3: Up to 33,400 jobs will be lost by 2015 if the GST threshold is not lowered. The facts: This assumes that a 14 per cent increase in the price of foreign imports would reduce demand by up to 70 per cent.3 However, Australians regularly face price differences of 50 per cent or more for identical products,4 and avoiding tax is one of the lowest priorities for those currently shopping online overseas.
Myth 4: Australia should simply adopt the UK system for applying sales tax to imports. The facts: This argument ignores the fact the UK is part of a common market, and that Australians already face substantially higher prices than overseas consumers for many identical products.
Myth 5: Overseas online purchases hurt the local economy. The facts: This is true to only a minor extent. Figures from the ABS show that online sales under the LVT accounted for just 2.85% of total retail sales in Australia in the 2012-13 financial year. Furthermore, the economy also benefits greatly from competitive pressure from overseas retailers. Money saved from cheaper overseas purchases is not automatically lost to the domestic economy, but supports spending in other sectors.
3. See p. 23 of http://www.ey.com/Publication/vwLUAssetsPI/NRA_Economic_Impact_Report/$FILE/NRA%20_Economic_Impact_Report.pdf
4. See Consumer Advocacy