The Federal government has rejected calls to immediately lower the price limit of items purchased overseas for which Goods and Services Tax (GST) applies to, but has not ruled out doing so in the future after recognising that the threshold is higher than in most countries.
Last Friday, the GST Distribution Review panel released a report recommending that the GST threshold for goods purchased overseas be lowered from AUD$1000 to $500 immediately. This would act as the first step to tempering the online shopping onslaught and give some reprieve to local retailers.
Calls to lower, and even abolish, the GST threshold go as far back as 2010. Major retailers, including Harvey Norman and Myer, have been vociferous on this issue.
But a report in 2011 by the Productivity Commission pointed out that lowering the GST threshold would be fruitless if the cumbersome parcel processing system is not overhauled.
"With around 58 million parcels entering Australia under the low value import threshold each year, lowering the threshold before putting in place significant reforms to processing capabilities would cause major disruptions to the international mail service and result in major inconvenience to the businesses and consumers that rely upon it," Assistant Treasurer David Bradbury said in a statement. "Without greater efficiencies in the system, the cost to taxpayers of collecting the GST on low value parcels would also outstrip the revenue that is collected."
The Federal government has announced that it is gearing up to look at reforming the parcel processing system, but noted that the AUD$1000 GST-free threshold for low value parcels is out of step to many countries around the world.
The government is committed to keeping the threshold until "sufficient data and systems necessary for efficient and effective customs duty assessment become available."
IBISWorld Senior Industry Analyst Narem Sivasailam was doubtful that the threshold would be lowered after the recommendation by the GST review panel. Not only that, but he questioned the effectiveness of such a move.
While eBay and Amazon, both US-based companies, are the two most popular online retailers that Australians are purchasing from, the majority of sales still pass through local online retailers, Sivasailam said.
"If you look at the actual numbers, some 73 percent of online sales still come domestically," he told ZDNet. "EBay and Amazon may be popular, but we're simply not buying from them as much as we are from local retailers."
Sivasailam believed that lowering the threshold would only provide marginal benefits to local retailers.
Moving to an online presence is the first step for any local bricks and mortar retailer, and while big players have tried to do so, they are simply not doing it well enough, Sivasailam said.
"We saw, with the whole Click Frenzy fiasco, that a lot of their websites simply don't have a robust enough of an infrastructure to really handle that kind of traffic," he said. "Pricing is just one aspect, but ancillary things, like free online returns, customer service, and security of the websites, all come into play."
Sivasailam noted that there will always be a place for bricks and mortar retailers, and said that despite the online shopping frenzy, it still only accounted for 5 percent of all retail sales.
"Obviously, people are still quite happy to walk into stores, and the challenge now is to have a compelling enough online presence to complement traditional storefronts," he said.