Small business welcomes Productivity Commission into retail sector, but warns industry giants don’t speak for all

Small business and industry groups has welcomed the Federal Government’s announcement of a Productivity Commission into the state of online retail, saying the issue of importers evading GST needs to be addressed quickly with the possibility of charging a tax on each online transaction.

The move comes as retailers say they are struggling under a double-blow of rampant discounting and a shift to online sales, although some business groups say larger companies lobbying the government to change GST laws don’t necessarily speak for the whole industry.

“There are a couple of voices out there…it must be said that we don’t speak for all of those,” Australian Retailers’ Association executive director Russel Zimmerman says.

Zimmerman says the group has been calling on the government to release changes for some time and is satisfied with the announcement.

“This is something we’ve wanted the government to do for some time, and we are pleased a review has been set in place and we welcome the government’s decision. We look forward to working with them now.”

Peter Anderson, chief of the Australian Chamber of Commerce and Industry, also says the review is welcome given that, “there are real changes occurring in some parts of the industry that warrant consideration.”

Council of Small Businesses of Australia chief executive Peter Strong also says changes in the industry are occurring rapidly, and that given the importance of the review’s topic, “we might like to see the timeline for this sped up a little”.

Assistant treasurer Bill Shorten announced the inquiry yesterday, following weeks of lobbying from the ARA and other major retailers over what they perceive to be an imbalance in the way offshore retailers are being treated.

“The case for lowering the threshold has significant opposition, including the cost of collection and consumer objections,” Shorten said in a statement. “”However, we are taking the concerns of retailers seriously, which is why I have asked the Productivity Commission to look into these issues.”

Home affairs minister Brendan O’Connor also said the government will embark on a compliance program so people are not rorting the system.

This is the main complaint of major retailers such as Harvey Norman and the Just Group. Gerry Harvey, who has been one of the most outspoken regarding the GST issue, has said the high Australian dollar is pushing more dollars offshore.

This has even caused Harvey to join up with Solomon Lew over the issue, with both veterans considering a campaign against the Government. Lew has told Fairfax that he is “baffled” the decision was even handed over to the Productivity Commission.

”I am extremely disappointed that instead of taking decisive policy action, the government has referred this issue to the Productivity Commission,” he said. ”The fact that offshore online retailers aren’t required to levy duty or GST creates an enormous competitive advantage for foreign businesses selling into Australia. These businesses don’t pay our taxes, employ our people or contribute to our economy.”

Harvey added that retailers including Westfield Group and Myer have joined forces to lobby their own position.

“You’ve got every second person in the country importing things from overseas, evading duty, not paying sales tax,” he told Bloomberg. ”You’ve got an awful lot of retailers that are going to be going broke after Christmas.”

The matter has even forced Myer to move offshore, setting up a Chinese-based website to avoid paying GST. Harvey has admitted the move has prompted talk of a similar venture within Harvey Norman.

Harvey was contacted by SmartCompany this morning, but was unavailable before publication.

These groups all differ on what they would like to see happen. Strong says the ultimate goal would see every online purchase charged GST.

“The Government has to stop this happening, and say that whatever you buy in Australia, you’ll be charged 10% on it. Obviously the collection is a problem, but there is a way to do that with credit cards and so on.”

“They’ve got to fix this, and this is why we welcome the inquiry and we look forward to seeing what happens. Small retailers are missing out and they should have the same rights.”

The ARA is less bullish. Zimmerman says the group is targeting those who abuse the system by importing products in multiple transactions under $1,000 and then selling them during a peak season at inflated prices – he says they are using a loophole and should pay more, and rejects the idea of hitting everyday consumers.

Anderson said ACCI isn’t taking any position on outcomes yet, saying that “there is no simple solution to the evolving changes in the industry… with the growth of electronic purchasing. The capacity for domestic retailers to not be short changed is important”.

Other retailers have proposed dropping the GST threshold, but as SmartCompany has previously pointed out, sales data from HitWise shows the average online purchase in each retail category is regularly hundreds of dollars under the $1,000 threshold.

The data shows that 35% of internet users purchased CDs, DVDs, books or magazines in the second quarter of 2010, with an average spend of $72. The second most popular category was travel, with 33% purchasing tickets and trips – but this was the only category with an average spend above $1,000.

But it appears these retailers are coming from two different positions. The ARA and COSBOA say they don’t align with larger retailers such as Harvey Norman and the Just Group, saying that “this is about smaller companies”.

“I think the end of the review cannot just be about larger companies,” Zimmerman says. “It’s about supporting retailers overall, and we want to say an evidence based review that will have benefits for the entire industry, online, offline, small or large.”

“It’s going to affect jobs, and we are going to see people being put out of work. We want a good economy, and a profitable retail sector.”

Strong agrees, saying that, “Myer and the big boys didn’t really care, and all of a sudden, they’re doing something.”

“I think this really shows how badly the internet is hitting the industry. Larger companies have treated smaller retailers with disdain for some time now. It shows how bad the environment is right now.”