In a submission ahead of the 2014-15 Federal Budget, CHOICE has provided new analysis showing the cost of proposals to reduce the GST low-value threshold (LVT) on imported goods would far outweigh the benefits.
As a result, the consumer group is urging the Federal Government not to reduce the LVT unless an independent business case is made demonstrating how a lower threshold will raise net revenue.
“We urge the Government to resist retailers’ calls to lower or abolish the LVT in the absence of a business case proving its feasibility, and significant reforms to parcel processing,” says CHOICE Chief Executive Alan Kirkland.
“Without such reforms, a reduced LVT would cost more to administer than it would raise in revenue, effectively creating a new $823m ‘internet tax’ on consumers. Worryingly, this figure is likely to be higher when the other costs associated with collecting the tax are added,” Mr Kirkland says.
“Our analysis shows that with 76.5 per cent of foreign online sales under $100 in value, in most instances, consumers would pay more to collect the GST in fees than the Government would receive in tax revenue.”
The CHOICE analysis shows that consumers would face a staggering 37% price hike on the average overseas purchase under $1000 if the threshold was lowered in line with some proposals. This would be a huge cost to impose on consumers for little gain, representing a considerable dead weight loss to the Australian economy.
CHOICE says the retail sector has publicly advocated imposing collection fees in line with the current system in the United Kingdom, which sees the Royal Mail charge consumers approximately $14 for the costs of collecting value added tax (VAT) on parcels.
CHOICE calculated the cost to consumers of administering the tax at a $0 threshold to be in excess $823 million:
“If the revenue raised from the GST cannot cover the costs of collection, then its not a tax, it’s a tariff – one aimed at sheltering parts of the retail sector by making it harder for Australians to access competitively priced goods from overseas,” Mr Kirkland says.
“Shifting costs onto consumers does not mean those costs no longer exist, and is not a solution to high collection costs.”
A CHOICE survey of online shoppers found only 12% nominated saving on “duties and taxes by purchasing on overseas websites” as a reason for shopping online. It also found that although many Australians shop online to get the best bargain, their main reasons actually relate more to convenience than price.
For more information on CHOICE’s campaigns and product reviews visit www.choice.com.au.