While there has been much debate over the years of whether lowering the GST threshold from $1000 will help local retailers be more competitive against international retailers, the Productivity Commission has made it clear that the current level of the low value threshold (LVT) only plays a minor in how retailers are competitively disadvantaged.
In its final report of the Economic Structure and Performance of the Australian Retail Industr the Commission highlights that while there is in fact a growth in online retailing – which Australia appears to lag behind in comparison to a number of comparable countries – online retailing represents 6 per cent total Australian retail sales – made up of 4 per cent domestic online ($8.4 billion) and 2 per cent from overseas ($4.2 billion).
The Commission found there are in-principle grounds to reduce the low value threshold, but that it is currently not cost-effective to do so.
“But there are strong in principle grounds for the LVT to be lowered significantly, to promote tax neutrality with domestic sales. However, the Government should not proceed to lower the LVT until it is cost effective to do so,” the report said.
It calculated that lowering the threshold to $100, for example, could collect around $500 million in revenue, but at a cost of $1.2 billion in administration and compliance costs.
However, if significant improvements were made to the cost of processing international parcels, the Government would be in a position to reassess the threshold.
But the Australian National Retailers Association (ANRA) disagrees saying that its members say 14 per cent of their business is being sucked up by overseas retailers not paying Australian rents, Australian wages and not operating under Australia’s regulatory frameworks.
"Retailers welcome competition, it keeps the industry on top of its game, but it should be on a level playing field. Australian retailers not only have to add GST to their prices but also a never-ending list of compliance costs, wages and rent costs, to name but a few of the burdens for local retailers,” Margy Osmond, ANRA CEO, said.
“This makes it hard to compete with an overseas offer and is not fair to Australian consumers shopping with Australian retailers and supporting Australian jobs.”
The Commission's report also highlights that the changing nature of retailing in Australia is part of a global structural adjustment. This offers new opportunities for traditional bricks and mortar retailers to also expand and innovate through online retailing. It also suggests that traditional business models may need to evolve in response to these challenges.
The report shows that there are many pressures on retailers, including changing consumer sentiment, changes in saving and spending patterns and differences in underlying cost structures across retailers, such as rental costs.