Thursday, December 30, 2010

Australia Likely To Tax Internet Purchases

My prediction is that the Australian Government, headed by the Labor Party and the Greens, will begin to tax purchases made on the Internet from foreign countries. I believe that online retailers in the US enjoy a tax-exempt status as they complained bitterly that it would hurt their fledgling businesses. This was in place for the first ten years of online business and was extended - correct me if I am wrong.

Currently Australian citizens can purchase goods online from an overseas country GST-free if the overall value is less than A$1000. This figure is also the same as the amount of goods that can be brought into Australia as tax-free purchases when you've been on holiday. It's a pretty generous figure I think you'll agree as it's much higher than most other countries. This probably came about so that Australian politicians could avoid our 12-32% sales tax, at the time (pre-GST), on any purchases they made offshore during travels. At least it's been extended to all and sundry. Citizens and permanent residents that is.

Aussies like a bargain. Our country provides a huge amount of commodities such as wood chips, oil, gas, coal, copper, iron ore, etc. The rest of the world requires these commodities to manufacture goods. They then seem to charge us more than our fair share for a comporable product. Don't believe me? Check your local iTunes store. The majority of singles cost A$1.69 - $2.19 apiece. I'll wager that in the US it's closer to US$0.99 a track. informs me that the Aussie dollar is worth 1.01745 USD this morning. So, US$0.99 is closer to AU$0.973. Parity in the dollar but no parity in the pricing from Apple.

But there are many other companies from whom you can purchase a product at a much lower cost than you are able to in Australia. Take cameras for example. When I was hunting for a camera this time last year the price ranged between $249 and $399 in Australia for one particular model. I was able to purchase it from a company based in Hong Kong and, including DHL shipment, it came to only $202. Plus they offered a spare battery for an additional $22 when I couldn't purchase that in Australia for less than $65! That purchase was a bit of a no-brainer. And I'm not the only Australian to have noticed that money can be saved online.

Some major retailers in Australia have noticed the competition and called for purchases made overseas but online to be taxed with the GST. They include Gerry Harvey from Harvey Norman, Bernie Brookes from Myer and Solomon Lew from Premier Investments (which owns Just Jeans among others). They argue that the $1000 tax-free threshold is hurting their businesses. Heck, you can buy a couple of pairs of denim jeans from the States and have them shipped to Australia and it's still cheaper than buying them from a department store in this country.

Bernie Brookes has stated that Myer will open an online store so that customers can purchase directly from a China warehouse and avoid paying the GST. It will make purchases appear more attractive to the shopper and it's an attempt to keep your dollars flowing through to Myer.

Not long after that statement by Mr Brookes and Gerry Harvey said that he was planning a similar move.

Check out what Michael Pascoe, a well-respected finance commentator, has to say about the issue. He considers that the retailers are more concerned that Aussies know how much the goods are really worth and how much mark-up the retailers have.

The Australian Government has launched an investigation into online sales and the implications for avoiding payment of GST. This is due to take nine months to complete and certainly wouldn't help retailers this year in Australia make up for "lost" sales.

Make no mistake - there is a lot of money, and foregone tax revenue, going overseas from online purchases. And when the government has this spelt out to them in black and white you can be assured that this loophole will be closed. I forsee that tax-free purchases made overseas will be limited to those that are made when you are physically overseas and not online. Internet purchases will be made subject to the GST.

1 comment:

Anonymous said...

I hope you are feeling better. I was am overworked I put this in the wrong place. Taxes suck. No new taxes. Gil