The second showdown

The Fashion Distributors Association of Australia (FDAA) is an industry association of independent distributors servicing the premium fashion product needs of the majority of small and large retailers, including online retailers, in that segment in Australia.
    
We are at the forefront of understanding the damaging impact of the high tax-free threshold. We believe it is imperative to reduce the threshold to below $100, thereby removing a tax loophole that our overseas competitors are exploiting to the detriment of Australian retailers’ current and future competitiveness.

Specifically, we would make the following comments:
1.  This GST and customs duty loophole is distorting the retail competitive environment, causing systemic damage. This damage will accelerate quickly and a swift response is needed.

2.  Online retailing is fast becoming a significant channel of product to market and it represents a seismic shift. Importantly, online retailing will produce significant productivity gains for the retail industry. Far from nurturing online retailing, the threshold is stifling Australian online retailers as they have a substantially higher cost base than the international online retailer. 

3.  Whilst Australia has an enviable record of removing trade barriers and becoming internationally competitive, reducing the threshold is not reversing this and becoming more protectionist – it is a tax loophole that needs to be closed.

4.  Eliminating this loophole is understandably unpopular. All consumers wish to avoid costs, and in particular taxes. The public interest, both short and long-term, is the overarching consideration. The public interest insists that the tax burden is spread equitably, that tax loopholes are closed, that Government policy should not distort the competitive fabric, and Australia is protected against unfair international competition.

5. The $1,000 threshold is an anachronism from simplifying importation prior to the emergence of the internet, e-commerce and the internationalisation of retailing. It has outlived its usefulness and is now an impediment to our retailers, both online and bricks-and-mortar, being internationally competitive.

6. Tax forgone calculations are being dramatically understated:

a.  The tax forgone is not just a raw GST and customs duty on the goods imported. There is a compounding aspect because of the local sale forgone. For instance, a $100 garment sold online from overseas avoids $10 in customs duty and $11 in GST. A total of $21.00. However, if this garment had been sold by an Australian retailer the price would be around $A155. Assuming the duty paid by the importer was $9, the GST in the $155 would be $14.09. The actual tax forgone is in fact $23.09, not $21.00. Some analysis being tabled only considers a $10 GST forgone. The real tax forgone is understated by 130 per cent.

b. The multiplier effect of sales forgone  needs quantification. Moving sales offshore eliminates jobs and small businesses. What are losses to income tax and company tax?

c. There will be exponential growth in  international online sales and the long-term economic loss and social impact needs to be factored in.

7. There is an unfairness in allowing a small, albeit growing, group to avoid GST and customs duty while the majority of shoppers carry theirs and by default the avoiders’, GST and customs duty burden.

8. Europe and the US have a low threshold. They see it as imperative to protect their retail economy from unfair competition. Australia is out of step.
9. The cost and difficulty of collection has been overstated. Australian Customs outsource their tax collection responsibilities to Australia Post, freight forwarders, the international parcel delivery companies and others. All have systems in place to collect duty and GST for the current threshold of $1,000. This system does not change if the threshold changes. Of course, it will need to be robust and scalable. The International companies like FedEx, DHL, UPS and TNT manage to collect duty and GST in countries where the threshold is less than $50 and have robust, scalable systems in place. Further, these companies recover the cost of duty and GST collection from the recipient of the parcel by charging a processing fee of a minimum of $25 per parcel.

10. We dispute the contention that the cost of collection outweighs the tax revenue received because not all non-readily quantifiable revenue factors have been considered. Notwithstanding this, even if dropping the threshold was revenue neutral, eliminating the damaging distortion is in itself in the public interest.

11. Australia is seeing a coring of its broader capabilities and competitiveness as the mining sector subsumes all. Australia’s mining success is obscuring problems in other sectors. The retail sector needs support now, regardless of the unpopularity of the measure. ?