Chinese retail giant Alibaba is among a group of multinational retailers that is insisting local small businesses will be left worse off by the federal government’s plan to collect GST on low-value online purchases from overseas suppliers.
On Friday, management from Etsy, Alibaba and eBay appeared before a Senate committee to discuss the implementation of the government’s plan to apply the goods and services tax to “low value goods” worth less than $1000 bought by Australian consumers from overseas retailers.
In a warning to the government, the three retailers say in their submission to the committee there is “limited incentive” for overseas businesses to comply with the new laws, suggesting 75% of imported goods would continue to go untaxed even if the plan was put in place.
“The proposed measures are wholly inadequate in achieving a meaningful level of compliance due to the absence of effective compliance and enforcement mechanisms,” Alibaba, eBay and Etsy said.
The three businesses said the plan would create “more incentives to cheat” and “market distortions” because there is an absence of compliance mechanisms to enforce the new laws.
The companies also maintain that while the plan is aimed at levelling the playing field for small Australian businesses currently required to pass on GST for all purchases, the change will actually end up hurting smaller suppliers because of the number of overseas businesses flouting the regulations, and “continued price pressures” from these non-compliant businesses.
Alibaba’s head of business development in Australia and New Zealand, John O’Loghlen, told the Senate committee the plan to collect GST at platform level, rather than individual seller level, added complications and disadvantaged businesses which sell less than $75,000 of goods into Australia each year.
This is because they would be charging GST on all items through Alibaba, whereas if they were using their own websites to sell items and they exported less than $75,000 a year worth of goods into the country, GST would not apply.
“Given the time and cost associated with complying, coupled with there being no form of solution to identify goods on arrival at the border, modelling indicates that 75 per cent of goods (by value) imported into Australia will continue to go untaxed,” he said, according to Fairfax.
Kathrin Bain, a lecturer in taxation and business law at the University of New South Wales, says that while she doesn’t believe the change will necessarily make things worse for small businesses, the policy won’t go a major way to helping them.
“I’m not sure I agree it will make it worse … but one of the issues I have with the legislation is that it’s not levelling the playing field,” Bain tells SmartCompany.
Local retailers face a number of cost pressures from overseas suppliers, and Bain says that while companies like Amazon have pushed hard for postal and courier services to collect the GST, rather than the companies and platforms themselves, this could have even worse results for the consumer.
“The only other potentially viable option is that you have the courier companies collect it. The problem with that is that obviously there’s costs involved in that. Like, if you bought a $20 book, would you be okay with paying another $2 in GST? Well, how about a processing fee [for postage] of about $10?” she says.
The small business community lobbied hard for the threshold to be scrapped, but there has also been scepticism about the long-term effects of the policy.
Last week Booktopia founder Tony Nash told SmartCompany even with the change in place, Australian sellers would be up against it when clawing sales back from the likes of Amazon.
“For us, it will be helpful, but at the same time, everyone knows the overseas retailer is still often [offering] more than 10% less than the local retailers,” Nash said.
However, Nash also said the policy was about more than just individual businesses; it is also about the expectation that those doing business in Australia fully contribute by paying adequate taxation, he said.
Meanwhile, campaigns like Keep Shopping Open insist the policy opens up the floodgates for new levies and taxes on Australian businesses exporting to other countries.
Bain says while this argument may be overblown, given no country has suggested it would retaliate by imposing new levies on Australian businesses, it would be unrealistic to expect to collect tax from overseas sellers and not be subject to other country’s tax laws too.
“They may be overstating that as an issue, but it would be a possibility,” she says.
“I think we have to accept if we say, for example, ‘the US should have to pay GST for us’, then we might have to pay other country’s [taxes].”
While the policy has been aimed at making things easier for local sellers, Bain says initial conversations around scrapping the threshold started more than five years ago when Australia had very different ideas about online retail would play out.
“This started to get a lot of attention in 2011 … one point to remember about then is that our dollar was around parity with the US dollar. At that time, it was assumed the majority of online retail sales would come from overseas, rather than domestic,” she says.
“But we need to make the point that at the moment, according to the NAB online retail sales index, around 80% of our online retail sales are domestic.”
Overall the impact of this policy might not have the reach it intends, says Bain.
“You really need to think about it … realistically, especially given the number of GST exemptions we already have, the effect on revenue really isn’t all that [big],” she says.
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