Australian consumers can currently purchase goods online valued under $1,000 without incurring GST and duties. In the last edition of Ragtrader, retail giants such as Myer and Westfield argued this threshold disadvantaged local players by allowing international etailers to capitalise on the market without tax restrictions. Online vendor Ezibuy, which has 670,000 customers and sends 1.3 million parcels to Australia per annum, and online auction giant Ebay both support the current threshold. Why? Below are highlights from their submissions to the Productivity Commission’s retail inquiry.
EBAY
In 1976, the low-value import threshold was set at $250. Imported items with a value less than this threshold were not subject to sales tax. Following the transition to the new tax system in 2000, the threshold was unchanged for GST purposes. In 1986, the low-value import threshold was changed to $1,000 for goods carried by Australia Post as a way to reduce the administrative burden on Customs and Australia Post and to reduce processing times. In 2005, the threshold was increased to $1,000 for goods which were not sent through Australia Post to align these thresholds. The figure below shows the path of the low-value import threshold over time.
A key message from this figure is that in real terms, the current import threshold is significantly lower than it was in 1976. Further, it can be shown that in real terms, a $250 import threshold would mean that the current level would be less than a fifth of the 1976 level. In the past 25 years since this increase in the threshold, two factors have conspired to make the administrative burden of a return to the $250 threshold even more administratively burdensome. These are:
• CPI increases, which have seen the real value of the $250 threshold reduce by more than half; and
• the increasing ability of individuals to import goods from overseas, using channels such as eBay.
Accordingly, it would appear that the administrative burden can only have increased since the 1986 review, and any changes would only lead to increased delay for all importers, thus negatively impacting the economy. A reduction in the GST low-value threshold to $250 would also impose a significant restraint on trade, not only from the GST, but from the costs – both financial and temporal – of the formal entry process.
EZIBUY
We do not believe that absence of GST/duty in the price of goods purchased from overseas is the predominant factor that motivates consumers to purchase items online. Indeed, a significant factor at the moment for consumers seeking out goods from overseas retailers would appear to be the strength of the Australian currency against the currencies of countries of traditional retail strength, i.e. the United States and United Kingdom. Goods from retailers in those countries are significantly cheaper than they were 10 years ago.
As technology has developed and online shopping becomes more prevalent, Australian consumers are able to use the strong local currency to their advantage. Goods that were previously prohibitively expensive in the domestic retail market can now be sourced from overseas for significantly cheaper prices, often well in excess of 20 per cent cheaper. Such a saving belies the purported advantage that non-resident retailers get from being outside the GST regime. Research indicates that the two most important factors in consumers’ decisions to shop online are convenience and price. The threshold of AU$1,000 (for both postal and non-postal goods) has been in place since October 2005.
Prior to this date, non-postal imports were subject to a AU$250 threshold, with the threshold at AU$1,000 for postal imports. The alignment was seen to provide a necessary balance between revenue collection and administrative efficiency. The then Minister for Customs, Chris Ellison, stated: “I understand that the increased threshold level is reducing costs and streamlining processing for 135,000 importers, small businesses and individuals...this removal in charges also represents a reduction in red tape, which is good news”.
A reduction in the threshold would affect the efficiency with which importers could move goods into Australia, with increased handling, storage and processing times as the number of formally entered items increases. This would unwind the improvements in administrative efficiency gained through increasing the threshold in 2005. The additional compliance and administration costs to the Australian Taxation Office (ATO) as a result of drawing more non-residents into the Australian GST net also need to be considered. The ATO would need to devote considerably more resources to ensuring compliance by these non-resident entities.
We note that a significant proportion of our Australian customers live in regional areas - approximately 50 per cent of imported goods in 2009 were delivered to people living outside of metropolitan areas. These customers do not necessarily have access to major retail shopping areas and e-Commerce provides their only means of obtaining certain products. These regional customers will often pay higher distribution costs due to their location and would be penalised further if the threshold were lowered and prices increased. Not only would the base price of the product increase, but these customers would also be subject to customs clearance charges and increased delivery fees, as transport agents attempt to recoup costs related to the handling, storage and processing of imports now subject to formal customs declaration.