US Successfully Introduces Online Sales Tax, So What About Our GST?
As US states begin to fall like dominos, introducing methods for collection tax from pureplay online retailers, there are easy parallels to draw with the Australian retail predicament. But just how similar are the two scenarios?
Starting on July 1st, online retailers in Texas are now required to collect sales taxes under recently introduced legislation aimed at ‘evening the playing field’. Texas is now the eighth US state to follow this path.
For Americans, the problem is clear; old laws developed for an old retail paradigm allow online retailers to avoid collecting or paying taxes on sales for states in which they have no physical presence. For retailers with bricks-and-mortar stores, supporting large overheads and struggling under the burden of significant risk, this added competition makes their position untenable.
“A true free market is devoid of government preferences and special treatment,” said Sandy Kennedy, President of the Retail Industry Leaders Association. “Texas has made a powerful statement that its time to end special treatment for online retailers and close the sales-tax loophole that gives companies like Amazon an artificial leg up on Main Street retailers,” she said, according to Chain Store Age.
The real motivation in the US for collecting sales tax is really the sheer amount of business that Amazon is able to poach from bricks-and-mortar businesses. While many other pureplay operations exist, they all pale into insignificance by comparison. By introducing legislation to make the collection of sales tax mandatory, Americans have effectively placed a muzzle on their rabid online giant – even if it is to the detriment of the much smaller online retailers.
Meanwhile, closer to home the GST threshold debate continues to rage on unabated, with members of the NRA just last week petitioning the government for new legislation to be introduced to address the issue. Their argument is roughly the same as the Americans’ – allowing overseas retailers (that are already at a competitive advantage) to have further concessions by way of not paying taxes on items under $1000 creates a significantly uneven playing field. This situation simply doesn’t support those retailers that are already struggling under the weight of depressed consumer spending.
I may as well come out and say it – I happen to agree.
Online retailers do have a competitive advantage over their traditional counterparts – overseas retailers even more so. The GST threshold only exacerbates these concerns, widening the difference in margins and affecting traditional retailers’ abilities to price their stock competitively.
That being said, it is ostensibly an oversimplification (or perhaps, a downright fairytale) to believe that introducing legislation to adjust the Low Value Threshold (LVT) will solve the issue in Australia as the Americans believe collecting online sales tax has solved their retail problems.
The issue is more complex than that. Firstly, consider the fact that the amount of trade going offshore is nowhere near as high as some retail organisations would have us believe. The MasterCard World Survey on Online Shopping Behaviour, released earlier this year, reveals that 75 percent of online sales made by consumers over 50 years old remain local. This number decreases for younger consumers, with 18-24 year olds spending online locally just 58 percent of the time. However, the preference is still for local online retailers.
Combine those figures with the overall slice of retail pie that the internet has inherited. NAB‘s online retail index currently has that number set at just 5.2 percent. If we can assume that the clear majority of online sales revenue actually stays within Australia, then the overall amount of sales that the NRA and other traditionally-minded retail bodies want the Federal Government to bend over backwards in order to collect taxes is somewhere between 2-2.5% of all retail transactions – probably even less when you consider that at least some of these sales will have order values above the threshold and therefore attract GST anyway.
Even after the Productivity Commission appointed by the government to research the possibility of lowering the threshold discovered it would be too expensive to actually collect this tiny amount of tax, still retailers believe this will be the source of their salvation.
Yes, I agree that lowering the GST threshold will improve Australian retailers’ competitive potential – but only fractionally. In fact, having a half-decent website and a one-page checkout would probably do more for them than any amount of legislation – but let’s not get carried away.
Do you still believe that enforcing a tax on less than 2.5 percent of Australian retail sales can save bricks-and-mortar businesses?