Retailers call for drop in GST threshold for online sales, but analysis suggests plan may not work

Momentum is now building among retailers and industry representatives who want the Government to drop the $1,000 GST threshold on imported goods to counter competition from overseas, but research conducted by SmartCompany suggests cutting the threshold may not actually work.

And while media reports this morning have suggested this pressure has caused financial services minister Bill Shorten to investigate dropping the threshold, a spokesperson confirmed this morning that the Government is only in early-stage negotiations.

Retail veterans and representatives including Gerry Harvey, the Australian Retailers’ Association and the Council of Small Businesses of Australia say they are suffering from online competition due to the lack of regulation around GST on imports.

Harvey called for movement on the GST yesterday, saying retailers are missing out by having the threshold so high at $1,000.

”The government can’t just ignore it,” Harvey said. ”They can’t just say it is too hard, it is too much money… it is sending retailers broke.”

Last month, Australian Retailers’ Association executive director Russel Zimmerman said the Government should consider dropping the threshold to around $400 as one alternative.

But according to data from Nielsen, the most popular categories for online shopping recorded an average transaction value of well under $1,000, and in most cases were under $400 as well.

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.

Third was event tickets, with 28% of users purchasing them with an average spend of $202. This was followed by downloaded music, videos or eBooks at 23%, with an average spend of $27, followed by computer software or hardware, with 22% purchasing and an average spend of $336.

Indeed, retailers themselves seem to be saying that dropping the threshold alone won’t solve the problem.

Jennifer Cromarty, deputy executive director of the ARA, says the association isn’t yet concerned with dropping the threshold. Instead, it wants the Government to put some regulations in place to identify abuses of the system.

“To make a decision about the threshold we need to look at what is happening already. It’s difficult to say what the impact is going to be, but we’re working with a few associations and are going to put forward a paper about some proposals we have.”

Cromarty claims that very few transactions are actually being monitored and regulated, leading to a situation where cunning entrepreneurs can jig the system.

“We have anecdotal reports of incidents like pop-up style retail outlets. So that’s systematic abuse, where they may purchase 10 things under the $1,000 threshold, and then sell them online in Australia without having paid GST.”

“We’ve heard of people importing ski products overseas, stockpiling these over a six month period and then opening up a shop and selling them. We’re looking for ways in which the system is being undermined.”

As a result, Cromarty says the Government could consider putting in some regulations including a limit on parcels, a limit on the amount someone can import over the year, and so on. “If someone is importing something under $900 every day for quite akwhile, that’s when I say we need to look at the framework.”

But she denies the ARA wants to target the average consumer. “If we’re talking about Mums and Dads buying things online and that sort of thing… that’s not the sort of thing we’re talking about here.”

However, COSBOA chief Peter Strong wants the opposite approach, saying he believes all sales online should be taxed. As to how that can be accomplished – he doesn’t know.

“I think if we used the financial system, you can get something done there. But how does that work? We’re going to have to sit down and see how that would work out, because I don’t have the answer. But if we it through the financial system then we can get everything.”

“Well, 99.9% of sales done online are through a credit card, so there you go. You can make sure they pay the GST,” he says.

Meanwhile, a spokesperson for Shorten has said the Government is “only just starting to look at [the issue] now… It’s way too early to even talk about what might or might not happen.”

“What is being considered is whether or not we lower the threshold or do other things to the threshold for goods that come in under $1,000 from overseas.”