Flat White

The government goes after online shoppers

5 May 2017

12:21 PM

5 May 2017

12:21 PM

If there’s one thing government enjoys more than taking your money, it’s finding a convenient excuse to do it. With the federal budget due next week and mounting pressure to repair our growing deficit, Canberra has done just that. The current proposal is to extend the 10 per cent GST to imported goods under $A1,000 in value. These ‘low value’ imports are not taxed at the moment because it costs the government more to police and collect the revenue at the border than it would to forego the tax entirely.

Now, they’ve found an ingenious way around the problem – make overseas sellers and even online platforms like eBay and Amazon with a turnover greater than $A75,000 (revenue, not profit) register with the Australian government so they can do the government’s job for them – collecting and accounting for the new GST. The government argues that this would only be fair – why should foreign sellers escape the GST when local retailers have it slapped on all sales?

At first glance, this sounds like a reasonable premise – even one which favours the little battler over those big, evil multinational corporations. But the reality couldn’t be further from the truth.

It’s no secret that Australia is one of the most expensive countries to live in even by the standards of the developed world and it comes as no surprise that more and more Australian homes are going online or looking to foreign shores for their shopping needs. Studies have found price differentials ranging from 14 per cent to a whopping 70 per cent for identical goods sold overseas.

But the GST isn’t the reason why our products are so expensive, it’s only a small fraction of the price difference. The Institute of Public Affairs found that the biggest drivers of cost are our uniquely high costs of doing business including burdensome regulations and absurd land use laws – variables that governments could easily tweak. Simply adding a 10 per cent GST on low-value imports isn’t going to solve the underlying problem. Certainly not at a time when disenchantment with a high cost of living and declining real wage growth is soaring to new highs.

Another problem with this new tax is its absurdity – online marketplaces like eBay simply provide a platform which connects buyer and seller. They usually do not deal with the goods or even the payment which is usually taken care of by third parties like PayPal.

The new tax would effectively punish online marketplace providers for no other reason than bringing consumers together with businesses offering products at a competitive price by forcing them to become revenue collecting agents for our government. This is sure to be a costly move with the costs passed on to Australian consumers and several online marketplaces have announced that they might have to cease trading with Australians as a result.

There is also the issue of enforcement – one which the government’s radical proposal is considerably vague about. While large, high-profile companies and sellers are likely to register with the Australian government, a number of smaller sellers and online marketplaces are likely to take advantage of their newfound comparative advantage by declining to register to pay the tax.

These are sites which are less likely to have the kind of consumer protections provided by their larger counterparts. There is a real potential for Australian consumers to be defrauded as these become more tempting for their considerably cheaper buys. These sites would be difficult to police, with their financial records located overseas and any government move to simply block the sites in Australia likely to be pointless and easily bypassed like the failed attempt to block torrent database, The Pirate Bay for facilitating copyright infringement.

Then there’s the other side of the equation – while large foreign sellers may see their businesses suffer because of higher selling prices, very many sellers of ‘low value’ imports are small or medium enterprises. These are the kinds of businesses whose entire model and livelihood often depend on platforms like eBay with long-standing reputations built through consumer ratings and reviews embedded directly within the site.

Many of these foreign sellers are small companies or community organisations selling unique, cultural products such as handicrafts – providing employment to the poor in developing countries while allowing them to practice and preserve their traditional arts. These are usually products which are not available domestically in Australia so there is no question of creating unfair competition for our retailers. There is a real danger that these unique items could become difficult or impossible to obtain on our shores.

Finally, the new tax is out of step and out of touch with developments around the world. The United States and the Philippines recently applied considerable increases to their value thresholds for imports which do not attract the GST and Canada is actively considering a similar move. The EU is also looking to streamline and reduce the burden their VAT collection places on importers. The International Chamber of Commerce recommends higher GST-free thresholds for low-value goods as the benefits of facilitating global trade are a win for consumers and avoid imposing cumbersome and costly burdens on sellers.

This becomes important when you factor in the real danger of tariff retaliation, with our trading partners likely to take issue with the impact this tax would have on their businesses. It is likely that these countries will apply retaliatory measures that could hurt Australian exporters while setting a damaging global trend for International trade.

President Trump has made it no secret that he despises trade arrangements seen to unfairly prejudice American traders and is prepared to withdraw from painstakingly-negotiated trade deals or terms of trade which are crucial to our exporting businesses. With the Turnbull government only recently securing hard-won deals with Korea, Japan and Singapore – there is a risk that their work could be undone as our trading partners recall us to the negotiating table.

Though domestic retailers charge a GST on all goods, they enjoy a number of advantages over their foreign counterparts. Their transport and logistics costs are usually lower, they provide a sensory experience online shopping simply cannot and they also receive ‘input credits’ or partial tax refunds which would be unavailable to foreign sellers incurring the GST.

They are unable to take advantage of these factors because our regulations make it virtually impossible to compete on price with their foreign counterparts and the government has not yet taken significant steps to solve the issue.

The new tax also will not address the looming budget deficit, with the government’s own modelling indicating that it would raise less than one per cent of all GST.

Economists agree that needless spending rather than insufficient revenue raising is the primary factor aggravating the budget deficit. Turnbull and Morrison need to muster the political will to do what is necessary next week, rather than slapping consumers with new taxes.

An open letter opposing the bill signed by 16 of the world’s leading taxpayer and consumer choice advocacy groups can be viewed here. You can also write to your local MP to express your opposition to the bill.

Satyajeet Marar is a Sydney writer and Research Associate for the Australian Taxpayers’ Alliance. He can be followed on Facebook.

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