Retailers say the Productivity Commission has outlined a strong case for reducing the $1000 GST-free threshold on online overseas purchases but stuck it in the too-hard basket.
National Retail Association executive director Gary Black said the commission had failed to consider the cost of allowing overseas-based retailers to hold a significant competitive advantage over Australian businesses.
He said the commission appeared to have put the issue in the too-hard basket by saying the cost of collecting tax would be too high to make it worthwhile.
“While the commission makes significant mention of the dead weight cost of collecting GST and other import charges on low value items, it has completely ignored the cost of doing nothing,” he said in a statement.
“The cost of inaction on this issue will be widespread business failure, and around 80 Australian jobs moving offshore.
“This would in turn result in substantially lower business and personal tax receipts and falling GST collection.”
Aided by a strong Australian dollar and lured by low overseas prices, Australian shoppers have wholeheartedly embraced internet shopping.
GST is typically not imposed on imported items costing under $1000 and that’s sparked loud complaints from retailers who must charge the GST on every item.
In its draft report released on Thursday, the Productivity Commission found great diversity in Australia’s 140,000 retail businesses which account for 4.2 per cent of GDP and 10.7 per cent of employment.
It said trading conditions were challenging and there had been a long term downward trend in retails sales as consumers spent more of rising incomes on non-retail services including property, travel and entertainment.
The $1000 low value threshold (LVT) for GST exemption on imports was a minor part of the competition story, the commission said.
But GST was a broad-based consumption tax and the LVT in principle should be reduced to a lower level to ensure tax neutrality.
It said at very low thresholds (for example $20), costs of collection would exceed tax revenue by over three to one. The commission recommended the government not lower the threshold until it was cost effective.
“Almost all countries have some threshold beneath which they do not attempt to collect taxes and duties because of the costs of collection.”
The processing systems for incoming parcels needed to improve and the government should investigate that with a view to then reducing the LVT cost effectively.
The commission also said retailers operated under several regulatory regimes that reduced competitiveness.
Planning and zoning regulations were complex, excessively prescriptive and often exclusionary while trading hour regulations interfered with industry ability to adapt and compete in a more globalised market.
As well, obstacles to greater use of enterprise bargaining and adoption of best practice productivity measures constrained workplace flexibility.
Australian Retailers Association (ARA) executive director Russell Zimmerman said the report touched on the imbalance of power between landlords and retailers and the need for increased workplace productivity.
“As retailers struggle with poor trading conditions, skyrocketing rents are driving many businesses into the ground,” he said in a statement.
“The ARA welcomes the PC’s acknowledgment that planning and zoning restrictions are propagating the power imbalance between landlords and retailers at the negotiation table.”