Will GST kill the internet star?

If your online purchases of up to $1,000 suddenly had the 10% GST added to them, would that make you shop at a traditional 'bricks and mortar' retail store?

The Productivity Commission this week released its draft inquiry report titled Economic Structure and Performance of the Australian Retail Industry. It examines the implications of globalisation for the retail industry and the appropriateness of current policy settings and finds that regulatory reforms are required for the industry to adapt to the global market.

With regards to tax, the current exemption from GST and duty for imports valued below $1,000 has been found to be only a minor contributing factor to online offshore purchases. However, for reasons of tax neutrality, the Commission recommends that the $1,000 threshold should be reduced, but only when this can be done cost-effectively. This is because where the costs of collecting a tax exceed the benefits of the revenue, that tax should not be collected. Without the $1,000 threshold, the report estimates that $578 million of revenue would be collected at a cost of over $2 billion to the taxpayer.

Let's look at State Government trading hour restrictions that fail to make much sense. The work practices and high labour costs in our workplace relations system are set to be examined. Retail zoning is another area for investigation, as are the parcel handling processes of Customs and Australia Post.

It is quite clear that our floating exchange rate and the business practices of the retail industry should not determine the formulation of tax policy. The fact that online shopping from overseas does not attract the GST up to $1,000 is not the reason that people are flocking away from the traditional retail stores at home.

Please feel free to share your thoughts. Have you caught the online shopping bug? Any stark examples come to mind about the price differential on the same item here versus overseas? What are your suggestions for the Australian retail industry?

Robert Jeremenko
Senior Tax Counsel

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