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Jan 20, 2011

Retailers and the loophole that wasn't there

The retail lobby against the internet has successfully seeded the idea that there is a GST "loophole." But no such loophole exists and and if they think it does, they're in a lot of trouble.

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You can’t say the campaign by the retail lobby against the internet has been a complete failure. It has been very successful at seeding the idea that the current “low value importation threshold”  of $1000 is a “loophole”. Henry Rosenbloom, defending the retail oligopoly in Crikey earlier this week, referred to the GST “loophole” several times. And the media routinely refer to the “loophole”.

Well, I guess one person’s loophole is another person’s insidious tax grab, but normally a loophole is an unintended consequence of policy, something unforeseen by bureaucrats and government lawyers when drafting legislation and seized upon by tax dodgers. But the low importation value threshold is deliberate Government policy, not an unintended consequence. And it has been around for decades, long before the GST. Moreover, it has been reviewed on multiple occasions – most recently in 2009.

If you want the full history, go and look at the submissions to the 2009 inquiry by the Board of Taxation. The submission from the Conference of Asia Pacific Express Carriers, prepared by PWC, gives the history back to 1976 of the threshold below which it was deemed too expensive or burdensome to try to collect tariffs, wholesale sales tax or, more recently, GST, on goods privately brought into the country.

Conference of the what and who? CAPEC represents express delivery companies that have benefited from the growth in online trade because they deliver goods ordered online. Hmmm, the retailers didn’t mention that, did they? They focused on the jobs they say have been lost or are at risk in their industry, not the ones created in other industries – an approach that we’re familiar with from other industries demanding protection. And it’s not just the likes of TNT or FedEx. One of Australia Post’s key growth strategies in an era of declining paper-based communication is delivery of online-ordered packages via its extensive network of retail outlets.

Some retail jobs are more equal than others, perhaps.

But, coming back to the CAPEC submission, why does it go back the 1970s? Well, e-commerce had its analog antecedents, as plenty of Crikey readers have pointed out, via catalogues and magazines. In fact one of the retail submitters to the Board of Taxation inquiry, the Sporting Goods Association, acknowledges this, noting that the threshold issue applies both to goods bought via the Internet and magazines.

See, the idea that tax policy should recognise circumstances where it is too costly for government agencies to collect tax, or it’s impractical to force retailers to collect tax on behalf of government, or the costs and inconvenience of imposing the burden of collecting tax on consumers themselves is simply too great, has been established in Australian tax law for decades, long before the internet. So too is the idea of selective application of tax. That’s why we have duty-free shopping, which is nearly a billion-dollar pa industry that employs 3,000 Australians, all around a tax “loophole”.

Incidentally, the threshold where goods became subject to duty in 1976 was $250 – which as the CAPEC submission notes, is the equivalent of well over $1000 now. In one important sense, today’s retailers are actually getting a better deal than previous generations.

As this indicates, none of these issues are new, which is why they’ve been the subject of similar inquiries before

But yes, some industry groups did raise the threat of online shopping with the Board of Taxation. The Australian Toy Association said the same thing as the Sporting Goods Association. I mean, literally – they put exactly the same submission in, just with a different header on it. The booksellers’ association lodged a submission – the local publishing and bookselling industry has long been dealing with the threat of online competitors. And the music retailers’ association did too. They displayed the same iron grip on reality shown by the big record companies in the face of online competition, calling for eBay to be taxed.

But at least those groups, however self-interested, made an effort. What did the big retailers say? What did Harvey Norman, or DJs, or the National Retail Association, tell the Board of Taxation about the low value importation threshold? Well, nothing, at least nothing public. The threat of online retailing was so great just over twelve months ago that none of them bothered to argue the case publicly for lowering or removing the $1000 threshold.

In any event, the Board of Taxation, like Parliament’s Joint Committee of Public Accounts and Audit in 1998 (not online, alas), wasn’t convinced. Like the JCPAA, the Board (chaired, incidentally, by Dick Warburton, who might know a thing or two about retail from stints as Chair of David Jones and Westfield Retail Trust) recommended keeping the threshold at $1000.

So, in summary, there’s no loophole, this isn’t new, and the threshold has repeatedly been examined and found to be appropriate. Everything the retailers say on this issue is self-serving misrepresentations — the lingua franca of rentseekers.

If this issue has already been done to death as recently as last year, why did the Government refer it to the Productivity Commission? Because until the explosion of consumer fury at the campaign, this easily-rattled Government wasn’t sure whether it faced another mining tax-style campaign or not. The much-maligned Bill Shorten, to his credit, moved quickly to respond to the retailers and argue correctly that lowering the GST threshold wasn’t going to fix the retailers’ problems. But a better government response would have reflected the Paul Keating approach to rentseekers – belt them, belt them hard and often.

The determination with which the retailers are pursuing this campaign suggests that they really aren’t getting it. Not so much about the internet (and, yes, we’re all over the line that so-and-so “doesn’t get the internet”), but about what appears to be a more conservative Australian consumer who, post-GFC, is finally paying attention to decades of imploring from policymakers to spend less and save more.

Retailers may be facing a secular change in spending habits that will bring significant long-term benefits to Australia. Like so many industries before them, retailers will simply have to adjust to economic reform. If they really think the GST threshold is the problem, they’re in deep trouble.

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40 comments

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40 thoughts on “Retailers and the loophole that wasn’t there

  1. kate

    “Retailers may be facing a secular change in spending habits”

    Hmmm … gotta be a wisecrack in there somewhere … Something about worshipping the god of consumererism? … Gerry Harvey thinks he’s bigger than Jesus? .. . No doubt wittier minds than mine will step up to the challenge.

  2. Meski

    Improve your range, service and pricing, local retailers. Then we’ll come back.

  3. andrew carter

    Where do companies like Harvey Norman, et al, acquire their goods? I imagine (but welcome clairifcation) that a lot of the retailers that are claiming internet sales are causing the loss of Australian jobs (as well as a reduction in the tax base) source their products from Asia and abroad because they are cheaper than acquiring them locally. Is that not the same thing they are now so concerned about?

  4. James Wade

    Do you know what shits me the most about this whole chi-bang?

    You don’t save a measly 10% shopping overseas online. When I’ve bought things online, I’ve typically saved 30-50%.

    Plus for things you don’t need right now, it’s a hell of a lot more convenient than trekking to the shops and dealing with parking and crowds.

    Not to mention the increased range of stuff you can buy. Most Aussie retailers cater to the lowest common denominator. If you want anything slightly nichey, you’ll most likely have to go overseas for it.

    I also wonder how much of the improvement exchange rate (I guess whether or not it’s an improvement depends which side of the fence you sit on) retail has passed on. At a guess, I’d say not much… prices didn’t really appear to be falling through the floor.

    I think the currently situation just shows how much big Australian retail has to answer for. The service is lacklustre, product range limited, and prices are inflated.

  5. Liz45

    Most informative article, Bernard, thank you!

    @ANDREW CARTER – Not to mention the fact, that we don’t manufacture many of the goods here any more. Maybe the odd mattress manufacturer/re-storer etc, but what white goods or TV’s/computers etc are manufactured here? None to very few I’d suggest. More furniture perhaps, but I don’t think many of any other goods are manufactured in Australia. I don’t think we even make telephones any more – even the ones with a Telstra brand are made overseas?
    As for clothes? Particularly women and kids – Made in China! Even the majority of dress and manchester fabric is made overseas these days. I make most of my clothes and for my grand kids(particularly when they were little) and not much is made here – very sad!

    I recall Gerry Harvey, prior to the ’07 Election, advocating, that there be two ‘tiers’ of workers – one half from Australia on award wages etc, and the other from overseas on about half or a little more. No doubt he’d take full advantage of that if it ever became govt policy? (there was public outrage, letters to the editor etc, and Joe Hockey had his staff checking out the names of letter writers?).

    Serves Gerry right! So much for our rights to freedom of choice! I’m personally a bit ‘scared’ of buying on line, but I know people who have, and they’re more than happy with their choices/service etc. That could certainly be improved here!

  6. Tim nash

    Shoppers look after their own interests and purchase goods from the internet. In doing so they inadvertently improve some domestic industries like Australia post, and also in other industries like IT and Graphic design.
    In peoples own self interest they improve the local economy – it’s the old invisible hand.

    The Sales tax is a side issue, retailers don’t like what’s happening as Bernard has pointed out and this is a chance for retailers to vent themselves.

    Little good it will do them, even with GST it’s still much cheaper to buy online.

  7. freecountry

    You’re right about the jobs. As Ross Gittins explains, fear of job losses is a leftover from the recessions of yesteryear. In today’s Australian economy, one door closes and another door opens.

    Strictly speaking, you’re right about the threshold not being a “loophole”, but only strictly. Until recently, mail ordering meant costs of delivery and international payments, delays, and risks of being ripped off, which more than balanced out any exemption in taxes and duties for low-valued items.

    That’s no longer true. Internet technology and online payment systems such as Paypal have made the mechanics of internet commerce trivial. Momentum in online retailing has brought about economies of scale. The price barriers are gone for all but the most everyday item. Today you could just about order your daily groceries and stationary online, just as cheaply as you can steal a shopping trolley and wheel it to the station.

    So the volume of trade which is exempted from the tax for reasons of expediency is growing every year. As it grows, it introduces distortions into the market for goods and services. These distortions mean that shops are providing free showroom services for shoppers, who go to have a look and ask advice, write down model numbers, and then buy online.

    It also means cavemen like me who still shop in my own country are actually subsidizing those who shop online. I’m honoured to do my bit, but in aggregate this causes our whole economy to grow a little bit more slowly than it could. We still have full employment, but the wages are worth just that little bit less.

  8. Barry 09

    No more Gerry Harvey shopping for me any more or any other rent seeker trying to prop up their Billions in profit. Have found Kogan.com.au and many other Australian online shops to use and help Aussie post workers/ contractors earn more. Liz try big companies and use paypal , for payment. Let your fingers do the walking and save on fuel. I buy all my motor bike parts on line and have sold parts on ebay to the world. Cannot walk into Honda shop and buy 1970’s parts off the shelf and is cheaper in the states for small light items (postage is a killer ). Labor should hammer the next Billionaire rent seeker into the ground and deport ( Jail ) him/her for treason or what ever to make them a example to others or they will keep on whinning.

  9. Sue11

    Great analysis. Maybe the retailers should get some hints from the Mining Companies about how to cry wolf more effectively.

  10. botswana bob

    The question is what are the overcharging retailers up to? As long as the South Pacific Peso is up in value–it has a record of volatility –charging the GST isn’t going to do much to drive consumers back to their high prices. The Brisbane Courier-Mail had an excellent example on a Canon digital camera that cost over $A1000 on line. Paying the GST and shipping and the camera was still $1000 less than in the stores owned by serial shouter Gerry Harvey. And its more convenient to order online than drive to a shopping centre, be slugged for parking, trudge to the shop and try to attract the attention of a disinterested shop assistant only to be told the item is out of stock.

    I reckon the campaign is directed at getting government not to charge GST on items under $1000 to the shops owned by these billionaires. A classic try on by the super rich.

  11. joff74

    We still have full employment, but the wages are worth just that little bit less.
    Barry 09
    This a little off the article issue, however just to correct you Australia does snot have full employment and hasnt since the 1970s atleast.
    Australia follows the typical neo liberal economic prescriptions of corporatism, however not for the small business or wage slave, the only full employment is the mainstream media corporate spin on figures, which is to fudge them by claming that every mass influx of 457 VISA holders getting employment or students visas, with part time work somehow equals full employment, dont fool yourself that Australia has full employment because the only one you are cheating is your own tax dollars which goes towards our unsustainable long term welfare budget which only grows & grows with natural disasters like Qld now to be tax payer funded also!.However the amount that was blatantly wasted on Oprah and the failed soccer world cup bid was more like the act of drunk driver at the wheel of governemnt!.

  12. freecountry

    JOFF74 – That was me, not Barry09. Fair point, Australia does not have full employment. I maintain that we will not come any closer to full employment by using a jobs argument to justify keeping a tax distortion.

  13. zut alors

    I regularly shop online for niche products or out-of-print books.

    Gerry Harvey and the other big retailers need to recognise the paucity of service offered in their stores. And should we customers be fortunate enough to attract the attention of a staff member we frequently have to suffer naff questions such as “How’s your day been?” Watch how fast I close my wallet the moment they utter this insincere patter.

    Another reason to avoid retail premises is the incessant noise of alleged ‘music’ or blaring TVs, radios etc. Don’t they understand that a relaxed shopper stays longer and buys more…

  14. Tamo

    While the big retailers are demanding a level playing field versus duty free and internet shopping, they might like to pay the same rates per sq meter and per sales dollar as the small retailers in the malls and thus level that particular playing field.

    PS: Has Australia ever had full employment?

  15. C@tmomma

    Botswana Bob,
    I’m with you. I think the unctious gerry Harvey and Solly Lew’s campaign is to get the government to allow them to not pay the GST anymore on items in their shops that cost <$1000.
    So less taxes paid means less services and infrastructure for you and me in the long run., and more money in their pockets. Greedy bastards.

  16. LisaCrago

    FANTASTIC

    Thanks, I too was not happy to hear the word loophole being misused and turned into an emotive word rather than a legal term.

    You have put this perfectly, really needed to be written!

  17. Oscar Jones

    Anything that saves me from shopping in one of those ghastly homogenized Westfield mazes is a blessing and on-line shopping is one.

    Gerry Havey deserves every bit of s**t thrown at him over this and if he goes down the tubes something else will rise in his ashes.

    He along with plenty of others squeaking right now are responsible for thousands of small retailers dying off in High Street centres as they rushed to over-price rental units in shopping plazas.

    The man makes me ill. In the past he would have railed against mom’n’pop businesses as being outdated as he opened glittering shops one after the other.

    It’s called karma and not too soon for Harvey. Get used to it ya mug. Your hokey campaign shows how out of touch you have become. Stay home and enjoy your $billions.

  18. heredownunder

    An Extra 10% tax for online goods under $1000 is not going to deter people from shopping online. That’s an extra $100 max. I will be still saving money!

    So what is their point?! Are they just trying to change the general public perception?

    People have been shopping online with eBay and Amazon and others for years now, its not like this has suddenly changed because the dollar is on par with the USA. Everyone is adding online stores. Why don’t Australia companies? If Ruslan Kogan can do it, why can’t others?

    Harvey Norman calls shopping online “Un-Australian”!

    Just look at the difference to what Kogan is doing online vs Harvey Norman.

    If I could go to an Australian online store, without the hassle of trying to find a park, paying parking fees, being hassled by sales staff all the time, then I would buy in Australia!

    Also, it only effects retail competition in some areas. It only effects products that are under $1000 and are small and easy to post. Larger, heavier items are too costly to post.

  19. Sascha

    I’m a big fan of buying online but I will say this; Small retailers are being hurt by internet sales not so much because of the so called tax loophole but becasue of the greed of big local wholesalers that have deals with overseas suppliers that basically allow them to monopolise the import of goods.

    I father in law owns a small shop in Wollongabba, Brisbane and I regularly inform him of prices for goods that I have seen on ebay that are lower than what he can buy them for wholesale. I suggested that he buy from ebay direct and onsell but the problem is that this will put his wholesale supplier offside and cause price and availability issues for other goods in his range. So in my view Gerry Harvey is big and ugly enough to look after himself along with the other big retailers. It’s the anto-competetive tactics of out own wholesalers that cause the problem for small business.

  20. James Wade

    @Heredownunder:

    Yeah I don’t understand what the point of the campaign is. Adding 10% GST to the price of goods doesn’t bridge the gap.

    I guess they’re trying to play on perceptions. Maybe if they get the limit dropped, they think, people will become more averse to shopping online. Who knows.

  21. freecountry

    James Wade, Heredownunder,

    The bigger the price gap, the bigger the shift. A 10% difference in the AUD/USD exchange rate seems to have caused a big shift away from local retail, even though goods were already much cheaper when the AUD was trading at USD 0.90.

    Oscar Jones:
    [Anything that saves me from shopping in one of those ghastly homogenized Westfield mazes is a blessing and on-line shopping is one.]
    Good for you. What has that got to do with whether you should have to pay GST or not like the rest of us?

  22. drsmithy

    “Good for you. What has that got to do with whether you should have to pay GST or not like the rest of us?”

    This is a straw man. He pays exactly the same amount of GST “the rest of us” have to.

    The tax code _explicitly_ exempts imported items under $1000 from the GST. By buying such items from overseas you are in no way committing any sort of tax evasion, fraud, nor any other sort of morally or ethically questionable behaviour.

    Buying items from overseas rather than locally is as much exploiting a GST “loophole” as buying fresh food instead of eating out is – absolutely none at all.

  23. freecountry

    No DrSmithy, your last argument is a straw man. I said “should have to pay” clearly referring to the law as it stands, not to any evasion of that law.

    Originally, the law as it stands was justified in terms of excessive compliance costs for low-value items. But during the recent campaign, and taking into account the words of Julia Gillard and Bill Shorten, the exemption now rests on a different justification: the fact that consumers benefit from low-priced imports.

    Based on the tone of the blogging here and the letters to the newspapers, the exemption rests on yet another justification: the perception that shop operators are assholes and deserve to get beaten up by the tax system. Hardly anyone is talking about compliance costs, whether or not they understand microeconomic distortion costs. The exemption is being defended as a gleeful “fuck you” to Gerry Harvey and his fellow retailers.

    I don’t know what you call that, a loophole or something else, but emotional reasoning like that is no way to run a tax system.

  24. freecountry

    No DrSmithy, your last argument is a straw man. I said “should have to pay” clearly referring to the law as it stands, not to any evasion of that law.

    Originally, the law as it stands was justified in terms of excessive compliance costs for low-value items. But during the recent campaign, and taking into account the words of Julia Gillard and Bill Shorten, the exemption now rests on a different justification: the fact that consumers benefit from low-priced imports.

    Based on the tone of the blogging here and the letters to the newspapers, the exemption rests on yet another justification: the perception that shop operators are ass-holes and deserve to get beaten up by the tax system. Hardly anyone is talking about compliance costs, whether or not they understand microeconomic distortion costs. The exemption is being defended as a gleeful “f### you” to Gerry Harvey and his fellow retailers.

    I don’t know what you call that, a loophole or something else, but emotional reasoning like that is no way to run a tax system.

  25. Socratease

    I used to have a degree of respect for Gerry Harvey’s retail acumen, but these days he comes across as a whining, whinging dinosaur. The import GST crap he spouts simply displays how out of touch he has become. His retailing paradigm, especially for small electronic goods, is on the way out. If he wants main street and shopping mall stores, then he’ll need to concentrate on white and bulky goods, and good luck with the profit margin on those.

    Retailers love to remind us about how many people they employ, and therefore what good corporate citizens they are. It’s bollocks.

    The fact is that under the traditional shop model they have to employ lots of people. If I were to show Gerry Harvey how he could cut a large percentage of his sales assistants from the payroll without losing a single sale, do you think he’d ignore that and carry on as usual? No way. He’d wring his hands publicly and about how his heart bleeds, etc, but out they would go.

    One of our major retailers does not use the term “salary” to its staff but instead “employment cost”. So, their staff get memos saying “as the result of your annual performance review, your employment cost for the next 12 months will be increased by X% to $Y”. In other words, never forget that we consider you first as a cost, not an asset.

  26. Fitz

    It is rare for high compliance costs to be justifiable but maybe most of the offshore GST purchases could be taxed without excessive compliance costs. Couldn’t the credit card companies, EBay etc all be made to do the work for the ATO? No reason not to add the GST on to the sales of “Duty Free” shops as well. Their mark-ups are huge so, if they worry about competition from Singapore, Auckland, Hong Kong etc they will have to cut a bit of their profits while paying tax which travellers can afford to have passed on to them better than non-travellers as a general rule.

    I don’t know why the retailers are getting stick when it is obvious that people who can buy online are avoiding tax payable by most other Australians. (As I do – and I try and aggregate my book purchases so I avoid providing too much employment to delivery people).

  27. drsmithy

    ” I said “should have to pay” clearly referring to the law as it stands, not to any evasion of that law.”

    So what GST are you paying that Oscar Jones is not, but should ?

    “Originally, the law as it stands was justified in terms of excessive compliance costs for low-value items. But during the recent campaign, and taking into account the words of Julia Gillard and Bill Shorten, the exemption now rests on a different justification: the fact that consumers benefit from low-priced imports.”

    No, it doesn’t. Unless you think those two people on their own can redefine the tax code ?

    “Based on the tone of the blogging here and the letters to the newspapers, the exemption rests on yet another justification: the perception that shop operators are ass-holes and deserve to get beaten up by the tax system. Hardly anyone is talking about compliance costs, whether or not they understand microeconomic distortion costs. The exemption is being defended as a gleeful “f### you” to Gerry Harvey and his fellow retailers.”

    No, the “f### you” to Gerry Harvey and his fellow retailers is going out because – since even a ten-year-old can do the maths and realise the GST doesn’t make up the price differences – Gerry and his mates are using a transparently bullsh*t argument for why their stuff is more expensive, then having the unmitigated gall to try and say we should be appreciative for their profiteering.

    “I don’t know what you call that, a loophole or something else, but emotional reasoning like that is no way to run a tax system.”

    Which is exactly why the emotive arguments – ie: basically all of them – advocating changes to how the GST is levied against imports should be ignored.

    Flipping traditional retailers the bird because they’re trying to blame a 10% tax on a 100% price difference isn’t “emotive”, it’s common sense.

  28. drsmithy

    “It is rare for high compliance costs to be justifiable but maybe most of the offshore GST purchases could be taxed without excessive compliance costs. Couldn’t the credit card companies, EBay etc all be made to do the work for the ATO?”

    No. Huge multinational companies are not going to restructure their systems to be the Australian Government’s tax collectors. It would be a huge expense with zero benefit to them.

    “No reason not to add the GST on to the sales of “Duty Free” shops as well.”

    Except for the whole point of a duty free shop ?

    “I don’t know why the retailers are getting stick when it is obvious that people who can buy online are avoiding tax payable by most other Australians. (As I do – and I try and aggregate my book purchases so I avoid providing too much employment to delivery people).”

    No, they’re not. No more than people buying fresh food (or any other designated GST-free products) are “avoiding tax payable by most other Australians”.

  29. nuytsia

    Bernard, this is a disappointing piece of misdirection. Rosenbloom’s use of the word “loophole” is no more disingenuous than your own use of the term “rentseeking”. Rosenbloom is at least correct in describing the current situation as a loophole to the extent that it has the (hopefully) unintended consequence of actively discriminating against local retailers.

    Is Gerry Harvey self-interested? Of course. Is he greedy? Quite possibly. None of that detracts from the fact that in this case, he has just cause for complaint.
    If Gerry Harvey et al were seeking greater tariffs on imports, I could respect your description of him as a rentseeker, but as you well know, he is actually arguing for a more level playing field – the opposite of a tariff.

    For the record, I am not a retailer or employed in the retail sector. I appreciate that the $1000 threshold is a deliberate policy with an underlying logic. I am not qualified to argue the merits of the policy and certainly not proposing its abolition – merely hoping for a fair hearing for those who are.

  30. freecountry

    [“So what GST are you paying that Oscar Jones is not, but should ?”]
    GST on local purchases of course, when I exercise my free choice to shop locally, just as you exercise your free choice to shop externally.
    [“Unless you think those two people on their own can redefine the tax code”]
    The tax code says what you do or don’t have to pay. It doesn’t say anything about why. The Prime Minister and the Assistant Treasurer gave a certain reason for denying a public request to review the law. That reason had nothing to do with the original rationale for that law, and everything to do with the public backlash. The law came about originally because of reason A, but it’s now being kept because of reason B.
    [“No, the “f### you” to Gerry Harvey and his fellow retailers is going out because – since even a ten-year-old can do the maths and realise the GST doesn’t make up the price differences – Gerry and his mates are using a transparently bullsh*t argument for why their stuff is more expensive”]
    If it makes no difference, then why was there so much excitement about our exchange rate rising, causing a flurry of articles such as this one? Some people prefer to shop the traditional way and will pay a 20% premium to do so, but not a 30% premium. The turning point varies from customer to customer, from product to product, and from shop to shop.

    All your vindictive hatred at Harvey Norman just sounds like so much petulant hatred. What were you doing there if you found it so loathsome? Did someone put a gun to your head and tell you you have to shop at Harvey Norman?

    Personally I prefer smaller independent retailers, even if they cannot buy as cheaply. This is for a variety of reasons, including that they tend to choose superior brands and models, then explain to customers why they’re better value, instead of just selling the brand that does more advertising. That’s worth more to me than a few per cent markup.

  31. Fitz

    @ DrSmithy

    You may be right about compliance costs but you give no reason for me to accept that you have reason to say that the credit card companies, at least for cards issued in Australia by Australian banks and other companies – the great majority – would refuse to do what was required for Australian tax purposes or would suffer huge costs. If every Australian’s credit card bill included a withholding of GST on all overseas purchases (or those above say $250) uneless and until he or she claimed it back online (which most couldn’t and wouldn’t) that would be just one of many imaginable ways that software could handle the matter easily.

    As for Duty Free Shops I am not sure whose standpoint you are taking when you refer to “the whole point of a duty free shop”.

    Taxpayers who don’t get a net benefit from them needn’t see any point in them except that the ATO and Customs may concede that putting a reasonable limit on duty free imports at the airport is a practical way of reducing the cost of policing regular semi-respectable smuggling. Otherwise taxpayers generally shouldn’t and don’t have any interest in the welfare of duty free shops.

    The owners of Duty Free shops could only complain about paying GST if it reduced the value of their businesses by an amount which made the purchase of the franchise on the faith of existing tax law somehow unfair – in which case we would no doubt hear loud bleating and some transitional arrangements would be made.

    So, who’s to complain if the definition of a duty free shop is changed so its only competitive advantage comes from (i) location and (ii) absence of customs duty and – much the biggest impost – excise duty? Well, you might complain if your are a frequent flyer who is also a heavy purchaser of booze and tobacco products. And even you would benefit still from the ability of the profiteering Duty Free shops to reduce their prices considerably to match those in Singapore, Bangkok etc.

    The real problem would arise if and when people did all their purchasing offshore (which they wouldn’t for reasons just noted). Even now there a theoretical problem from people buying an expensive camera or two on a single trip to a shopping paradise and then not quite remembering that the price and purpose take them well beyond the exemptions. But you didn’t raise that so I won’t discuss it further.

    As for your avoidance point, that is misconceived. I am, btw, attaching no blame to avoidance, but it is clear that I avoid the tax paid by others if they buy a computer at Harvey Norman’s store and I buy it online from Singapore for under $1000. The fresh food example is not a good one because it is exempt from GST but a computer bought at a Harvey Norman store is not.

  32. drsmithy

    “GST on local purchases of course, when I exercise my free choice to shop locally, just as you exercise your free choice to shop externally.”

    Are you saying Oscar isn’t paying his GST on local purchases ? Or are you saying that you are unable to order from online stores ?

    The GST *does not apply* on those foreign purchases. People making them no more “should” be paying GST on them than people buying unprocessed food that is exempt from the GST.

    “The law came about originally because of reason A, but it’s now being kept because of reason B.”

    If the only evaluation of whether or not the threshold should remain was by those two people, in their respective interviews, then you might have a point.

    It wasn’t, so you don’t.

    “If it makes no difference, then why was there so much excitement about our exchange rate rising, causing a flurry of articles such as this one?”

    I fail to see how that article provides the slightest amount of support for the premise that people are shopping online to avoid the GST, nor the implication that GST not being charged on said purchases is hurting local retailers. Indeed, the only place “taxes” are even mentioned are in the comments responding to it.

  33. drsmithy

    “You may be right about compliance costs but you give no reason for me to accept that you have reason to say that the credit card companies, at least for cards issued in Australia by Australian banks and other companies – the great majority – would refuse to do what was required for Australian tax purposes or would suffer huge costs. If every Australian’s credit card bill included a withholding of GST on all overseas purchases (or those above say $250) uneless and until he or she claimed it back online (which most couldn’t and wouldn’t) that would be just one of many imaginable ways that software could handle the matter easily.”

    Firstly, why is a $250 limit any more justifiable than a $1000 limit ?

    Secondly, the single biggest effect you proposal would have is requiring everyone who wants to travel overseas have 10% more money on hand than they otherwise would.

    Thirdly, how can you justify the massive costs involved in administering and policing the system ?

    Finally, you still haven’t explained how you’re going to convince the credit card companies to spend lots of money creating this system (and keeping it maintained) when for them it’s nothing more than an expense.

    “As for Duty Free Shops I am not sure whose standpoint you are taking when you refer to “the whole point of a duty free shop”.”

    The whole point of a Duty Free shop is to be free of duties and taxes. If you apply the GST (and by extension all the other taxes an duties as well, since there would be no more justification for leaving them off than there would the GST) to items sold there, it’s not longer a Duty Free shop, it’s just a shop.

    “As for your avoidance point, that is misconceived. I am, btw, attaching no blame to avoidance, but it is clear that I avoid the tax paid by others if they buy a computer at Harvey Norman’s store and I buy it online from Singapore for under $1000.”

    No, you don’t, because those others could also, just as easily, purchase that computer “online from Singapore for under $1000”.

    “The fresh food example is not a good one because it is exempt from GST but a computer bought at a Harvey Norman store is not.”

    Fresh food is exempt from GST for *exactly* the same reason imports under $1000 are – because the tax code says so. You cannot say one is “avoidance” and the other is not.

  34. freecountry

    DrSmithy,
    [The GST *does not apply* on those foreign purchases. People making them no more “should” be paying GST on them than people buying unprocessed food that is exempt from the GST.]
    First of all, your circular logic is that the law is right because it’s the law. The law says you don’t have to pay GST on some purchases, therefore it’s right not to, and the law should reflect what’s right, therefore the law is perfect now.

    Secondly, you’re wrong about the law. Unprocessed food is “zero rated” which means the GST payable on it is zero, no matter where it comes from or what the price tag is. Offshore purchases are rated exactly the same as domestic purchases–if it’s 10% in Australia it’s 10% from Amazon–but this liability is “exempted” if the foreign purchase is priced below $1000.

    This is not just splitting hairs. “Zero rated” means a specific decision has been made in Parliament that certain goods are not to be taxed. “Exempted” means they would normally be taxed but under certain circumstances we let it go because it’s too much trouble. It’s like rounding down the cents on your tax return.

  35. davirob

    It’s my money,no its not.

  36. Bec83

    I’ve been having items sent from the states to Australia over the last six months using Shipito, after spending several weeks researching and asking friends etc to find a good package forwarding company. I used a promo link when I first signed up: http://bit.ly/promo27757 I’ve been keeping a look out for better services, and so far Shipito is the best I’ve come across.

  37. presactly

    As a tapayer, I’m quite happy to keep the GST exemption on private import purchases under $1000, since I understand that the regulatory costs would like exceed the (expected) increased tax take. We already have enough churn in the tax system ($1 in $9, if I remember the stats correctly).

    As a regular online shopper, there are some amazing bargains to be had online. Particularly in clothing/fashion where the different seasons between northern and southern hemisphere can certainly work in my favour – to a margin far greater than 10%.

    However, I also shop from small Australiann online outlets. And they provide the service, quality and niche products so often missing from our ‘major’ retailers.

    So to my mind, it’s not a narrow parochial issue at all. And as Bernard rightly says, it’s about rent seeking. People who set up a once-successful model and are seeing that challenged by a changing market, now turning around and demanding protection. No thank you!

  38. CheshireCat

    Freecountry it’s a bit hard to peddle the line

    “Based on the tone of the blogging here and the letters to the newspapers, the exemption rests on yet another justification: the perception that shop operators are assholes and deserve to get beaten up by the tax system. Hardly anyone is talking about compliance costs, whether or not they understand microeconomic distortion costs.”

    When it appears most people here are actually talking about compliance costs and the like.
    For every ‘solution’ proposed there are a number of reasons why it either won’t work or will have many unintended consequences. The ‘what if’ arguments alone destroy half of the solutions proposed by others.

    The taxation system will never be perfect but for very obvious reasons they have decided collecting the tax on items under $1000 is too costly to the tax payer CURRENTLY. That doesn’t mean they can’t change it in the future where differing online sale and distribution methods, global online markets etc might make it easier or more viable to collect, but by the reports commissioned that is how it stands at the moment.

    The talk of credit card tax and taxes as funds leave your account scream of double dipping tax grabs, what if I transfer money to another account? Why should i pay tax for my hotel purchase in Japan etc. Let’s be honest here. The tax department tries to collect as much tax as it can. If the minor internet transactions were really a pot of gold wouldn’t they be the first ones to try and milk it?

    If they did try to introduce it you would just see more people receiving ‘gifts’ from their overseas relatives. Or items bought ‘second hand…so I only paid $990’ this happens already. Why do we try so hard to create criminals out of everyday citizens? (copyright infringement)

    While it would certainly be fair to make Australians pay GST for OS online purchases coming straight into Australia. If we follow the money trail it seems more likely Gerry and the like want it to become to bothersome for overseas companies so they simply won’t do business here. Plenty of places already won’t ship to Australia because of retarded distribution models. What is really needed is for the Australian retail sector to gang up on the distributors and demand a better deal. They are all buying TV’s from the same factory/manufacturer, and they are being shipped from China which is closer to Australia than many other places.

  39. Dogs breakfast

    More blathering stupidity from FreeCountry. No surprises there!

    Wouldn’t invoking GST on imported goods under $1000 be another great big new tax? Let’s ask Tony Abbott. He’s always good for a well thought out economic argument.

    Please remember that this is not about online shopping, it is about online shopping from overseas companies. You still pay GST on local online shopping.

    And don’t get sucked into the line that this has anything to do with retailers. This wonderful invention of the internet may actually see the customer get something called ‘service’, or value for money. Consumers have been ripped off in Australia for a long time.

    This is ultimately about Westfields and the Big Retail landholders. They will ultimately pay the price by having to reduce their exorbitant rents and slave contracts to the retailers so that they can compete with the internet, otherwise Westfields and Harvey Norman are ghost shopping centres of the future.

    While Harvey Norman is a retail shop, Gerry Harvey is in the Commercial Property game more than retail. Follow the money. This is a threat to Gerry’s fortunes as a commercial landlord, not as a retailer.

  40. zut alors

    @ Dogs Breakfast

    Agree, agree, agree. You’ve nailed it exactly.

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